The European Central Bank launched a new round of cheap loans to support troubled banks and postponed interest rate hikes to at least the end of 2019, months later than previously indicated, in efforts to spark growth in the eurozone. As a result, German bonds soared and yields on the benchmark German 10-year bond hit its lowest since October 2016, dropping as much as 6 bps to 0.07%. Yields on Italy’s 10-year bonds fell 10 bps to 2.49%, the lowest since July.
Money market investors have adjusted expectations for policy tightening in terms of interest rate increases to happen after September 2020, as compared to June 2020 before the ECB meeting last Thursday. Any increase would be the central bank’s first since 2011, and the ECB is just the latest major global central bank to announce that their departure from a decade of loose monetary policy may be less smooth and imminent as anticipated. This move has been due to weak eurozone data including that of Italy entering recession and Germany being on the margin of one.