Eurozone bond yields fall after ECB's Lane warns against complacency

Philip Lane said a strong euro further dampens price pressures. Picture: Sam Boal/RollingNews.ie

Government bond yields across the euro area fell today after the European Central Bank’s (ECB) chief economist Philip Lane said there was no room for complacency as inflation will be persistently low in the coming years.

Lane, speaking a day after the ECB left policy unchanged and disappointed markets with a less dovish message than anticipated, added that a strong euro further dampens price pressures.

A new selloff in US tech stocks, showing that risk-appetite in world markets was abating, fuelled demand for safe-haven German bonds.

“The tone is dovish overall but there is no major departure from the assessment at the press conference yesterday,” said Antoine Bouvet, senior rates strategist at ING, referring to Lane’s comments.

“(Lane) also made his view known before the meeting and doesn’t seem to be in the majority of the GC (governing council) on that front.” The ECB can do more if warranted, ECB policymaker Francois Villeroy de Galhau said.

Germany’s benchmark 10-year bond yield fell 3.5 basis points to -0.46%, down from a more than one-week high hit the previous session at around -0.42%.

Italian bond yields were also broadly lower, with 10-year BTP yields touching a one-week low at 1.036%. The closely-watched Italian/German 10-year bond yield gap narrowed slightly.

German bonds yields jumped in a sign of disappointment that ECB chief Christine Lagarde did not signal more stimulus soon.

Negative eurozone inflation and a strong euro that could dampen the economic recovery had triggered expectations of more easing by the ECB in the next few months.

But the ECB’s measured view on the exchange rate and its upgrade to growth forecasts tempered hopes about a further expansion of its emergency bond-buying scheme.

Reuters