The prospect of further cuts in interest rates and bond-buying to support a fractured global economy kept stock markets on the up in Europe and Asia on Friday, and drove U.S. and European government bond yields to their lowest in years.
Signs that the world’s big central banks will go even easier on monetary conditions, extending an era of ultra-low interest rates, have been at the heart of a recovery for stock markets from the chaos caused by Britain’s vote to leave the European Union last week.
But the big moves on Friday were in the bond yields that represent the cost of borrowing for governments and a benchmark for how much banks, companies and individuals pay for credit.
The 10-year U.S. Treasury yield US10YT=RR fell to its lowest in four years, taking it within striking distance of record lows. French and Dutch equivalents hit all-time lows and those for others among Europe’s struggling southern states were around their lowest in a year.
The fall in peripheral yields came largely thanks to a Bloomberg report that the European Central Bank was considering looser rules for bond-buying that might include moving away from a link between purchases and the size of a country’s economy. The report also helped European shares edge higher for a fourth day .FTEU3, although Wall Street was set to open flat. 1YMc1
“The speculation that the ECB might adjust its QE program is something that is being received excitedly in bond markets,” said Christian Lenk, a strategist at DZ Bank.
“It would mean that issuers who have large outstanding debt like Italy would stand to benefit.”
Sources close to the ECB told Reuters, however, that the ECB was not currently considering buying government debt out of proportion to euro zone countries’ shareholding in the bank and that the hurdle for abandoning this capital key was high.
