Eurozone bond yields hovered around all-time lows and the euro rallied on Thursday after the European Central Bank announced further asset purchases and held rates steady.
The euro climbed 0.4 per cent to $1.2132, close to its high of the year, after the ECB said it would expand its €1.35tn emergency bond-buying programme by another €500bn and extend it to March 2022, broadly in line with consensus expectations. The bank also kept its deposit rate unchanged at minus 0.5 per cent.
Italian, Spanish and Portuguese 10-year yields had all fallen to their lowest levels on record ahead of the central bank’s meeting, and remained around those levels after the announcement.
The move was signalled by Christine Lagarde, the central bank’s chief, in October and reinforced in meeting minutes released last month.
The ECB “broadly delivered what was very close to market expectations, which is which is why you’re not seeing much more than an initial knee jerk reaction”, said Francesca Fornasari, head of currency solutions at Insight Investment.
Hugh Gimber, global market strategist at JPMorgan Asset Management, said more important than the pace of new asset purchases was “how long [the ECB] are willing to confirm that they are there as a backstop for the market”.
The central bank would be “reluctant to pull away from the markets too sharply” because they were acting “almost like a comfort blanket”, he added.
Ms Lagarde said on Thursday that not all of the increased sum available under the bond-buying programme need be used “if favourable financing conditions can be maintained”, but that the amount available could be “recalibrated” if necessary “to help counter the negative pandemic shock to the path to inflation”.
The ECB’s purchase programme has helped ignite a record-breaking rally in eurozone debt. Spain issued fresh 10-year debt at a negative yield for the first time on Thursday, with an auction of €920m of bonds maturing in October 2030 priced at a yield of minus 0.03 per cent.
It joins a club of eurozone nations being effectively paid by investors to borrow over a decade. Portugal’s 10-year yield turned negative two weeks ago.
The region-wide Stoxx Europe 600 index slipped 0.2 per cent, while Germany’s Dax fell 0.1 per cent. London’s FTSE 100 strengthened 0.5 per cent, helped by a weaker pound, which boosts the blue-chip index’s swath of dollar earners.
Sterling slid 0.8 per cent to $1.3286, as the deadline for a UK-EU trade agreement approached with no deal secured.
In recent weeks, investors have had to balance optimism over encouraging vaccine news against the economic cost of the pandemic gripping Europe and the US.
Data from the Office for National Statistics showed the UK’s economic recovery faltered in October as the services sector was hit again by renewed restrictions. That month, UK output grew at its slowest rate since May.
However, in more upbeat news, Canada became the third country to approve the Pfizer/BioNTech Covid-19 vaccine, after the UK and Bahrain.
In the US, nerves about whether lawmakers would agree a new fiscal stimulus package caused equities to stall following record highs on Wall Street earlier this week. Futures tipped the benchmark S&P 500 index to slip 0.2 per cent at the open.