Huge ECB stimulus programme pushes down Eurozone bond yields
Bond yields have fallen across the Eurozone as investors and governments breathe a sigh of relief following the European Central Bank’s (ECB) decision to buy €750bn (£709bn) of assets in a huge programme to counter the economic effects of coronavirus.
The yield is the amount the investor receives from a bond – government debt – and moves inversely to a bond’s price. Rising yields in countries such as Italy in recent weeks has signalled that investors are nervous about the country’s prospects and have driven borrowing costs higher.
The ECB yesterday stepped in and massively ramped up its so-called quantitative easing (QE) scheme, under which it creates digital money and uses it to buy government and corporate bonds.
A huge injection of cash into the market has cooled investors’ nerves and sent yields falling across the euro area, easing the strain on countries such as Italy.
The yield on the 10-year Italian government bond has fallen 67 basis points (0.67 percentage points) to 1.633 per cent. This shows investors buying up Italian bonds, pushing down the yield and lowering the government’s borrowing costs. The 10-year yield had yesterday touched three per cent.
Germany’s 10-year Bund yield also fell, shedding ten basis points to minus 0.312 per cent, meaning investors would lose money if they held the ultra-safe asset to maturity.
The ECB yesterday announced it would make all €750bn of purchases by the end of the year. Added to purchases it had already announced, the euro’s central bank will spend €1.1 trillion this year.
“Extraordinary times require extraordinary action,” ECB president Christine Lagarde said after an emergency policy meeting late yesterday. “There are no limits to our commitment to the euro. We are determined to use the full potential of our tools, within our mandate.”
The Bank also announced it could buy Greek government bonds for the first time since the Eurozone crisis hammered the country.
In response, the Greek 10-year yield plunged 180 basis points to 1.993 per cent, easing the strain on the government after it hit 3.8 per cent yesterday.
The ECB also expanded the range of its purchases to cover short-term corporate debt known as commercial paper in an effort to support struggling firms.
European shares broadly rose, with the continent-wide Stoxx 600 index up 1.1 per cent. France’s CAC 40 was 2.4 per cent higher and Germany’s Dax was up 1.5 per cent.