U.S. and eurozone government bonds rallied broadly on
Thursday, sending yields tumbling, after the European Central Bank made a
historic step to buy government bonds in a bid to curb threats of
deflation. The ECB joins the ranks of the Federal Reserve and other major
central banks tapping the unconventional monetary policy tool, known as
quantitative easing, following the 2008 financial crisis. The money largess has
sent the value of stocks and bonds soaring over the past few years.
Stocks in Europe strengthened along with bonds, the latest
sign loose monetary policy remains a support for financial markets at a time
when investors are grappling with an uncertain global growth outlook. The U.S.
economy has been the sole bright spot and the Federal Reserve is the only major
central bank that has rolled back economic stimulus.
ECB President Mario Draghi announced on Thursday
that the ECB plans to buy a total of €60 billion ($69 billion) a month in
assets including government bonds, debt securities issued by European
institutions and private-sector bonds. The ECB plans to buy bonds maturing from
two years to 30 years, a broader range than many analysts have expected.
U.S. bonds offer much higher yields compared with their
counterparts in Germany, France and other major developed countries, drawing
investors seeking relative value in liquid bond markets. In recent trade, the
yield on the benchmark 10-year U.S. Treasury note was 1.830%, down from 1.941%
right before the ECB announcement, according to Tradeweb. In Germany, the yield
on the 10-year bond fell to 0.39%. The yield on the 10-year bond in Spain
dropped to 1.409% and the yield on the 10-year bond in Italy declined to
1.571%.
The price strength in Treasury bonds Thursday was a stunning
turnaround from the selloff that had dominated the bond market over the past
session. Bond prices had tumbled earlier, and the 10-year note’s yield jumped
to 1.95%, as investors booked profits from a recent rally that had sent many
bond yields to historical or near historical lows. Hopes the ECB would launch a
bond buying program had been one of the main contributors to lower bond yields
over the past few months.
U.S. government bonds have rallied this month, driven by an
uncertain global growth outlook and deflation concerns in Europe amid slumping
oil prices since June. Deflation, or a persistent fall in consumer prices,
boosts the value of fixed-income assets.
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