Greek government bond yields fell for a second session in a row on Friday as the ECB’s cautious stance supercharged Southern Europe – but especially Greece, the biggest beneficiary of the central bank’s pandemic emergency purchasing programme (PEPP).
The European Central Bank said on Thursday it would trim emergency bond purchases but was keen to stress it wasn’t about to close the money taps, with ECB chief Christine Lagarde saying: “The lady isn’t tapering.”
Greece was included in ECB bond purchases under the central bank’s COVID-19 response for the first time since asset purchases began in 2014, having been barred previously because of its lack of an investment grade rating.
“There’s quite a widespread assumption that the ECB will ease further in December – either an increase of the asset purchase programme or just extend the PEPP by three or six months,” said ING rates strategist Antoine Bouvet.
“If they extend PEPP that is obviously supportive for Greek government bonds in particular. In general we remain bullish on Southern European debt on the back of ECB support.”
Greek and Italian government bonds led a broad rally in euro zone debt on Thursday, with 10-year yields falling seven basis points each. Greek 10-year yields fell a further 3.5 bps on Friday morning to 0.754%.
Five-year yields headed back towards the 0 mark in early trade, and were trading at 0.017% at 0745 GMT.
This reverses some of the sharp yield rises in the run-up to Thursday’s ECB meeting as investors bet that rising inflation in the single currency bloc might lead the ECB to claw back some of its extraordinary stimulus.
Other euro zone bond yields were broadly unchanged after having fallen on Thursday in response to the ECB meeting.
Germany’s 10-year government bond yield, the benchmark for the bloc, was flat at -0.366%, while Italian yields rose 2 bps to 0.688%, after having fallen eight bps on Thursday.
Industrial production data from France, Spain and Italy are due out later on Friday, when a number of ECB policymakers are expected to speak, though analysts believe they will refrain from rocking the boat after a smooth meeting on Thursday.