* Eurozone suburban government bond yields tmsnrt.rs/2ii2Bqr (Updating prices, adding to record low yields in Italy)
MILAN, Feb 11 (Reuters) – Eurozone borrowing costs fell on Thursday, with Italian 10-year bond yields dropping to all-time lows, as global markets focus on the dovish Federal Reserve outlook after unexpectedly weak reading on inflation US.
The European Commission, meanwhile, said the eurozone economy will recover less than previously thought from this year’s coronavirus slump, adding that 2022 growth will be stronger than previously estimated.
The yield on the German 10-year government bond fell 2.5 basis points to -0.463% after hitting a one-week low of -0.474%.
The 10-year US Treasury yield fell to 1.14%, far from a peak of 1.2% Monday, as US inflation data on Wednesday missed expectations.
On Wednesday evening, Federal Reserve Chairman Jerome Powell said he would like to see inflation hitting 2% or more before even thinking of easing super easy bank policies.
“Benign US CPI results in January mean markets don’t have to worry about a hawkish Fed for now. Looking at a broader set of indicators than just interest rates suggests that the trading reflection is alive and kicking. Risk appetite should continue to improve, driven by lower real interest rates, ”ING said in a note to clients.
According to Saxo Bank fixed income strategist Althea Spinozzi, the market believes that the lockdown and slowdown in the economy will be prolonged and that the central bank will continue to be dovish.
“Today’s decline in German bond yields is a rebound after the recent sell-off,” he added.
Italian bond yields hit all-time lows after borrowing costs fell to a new record depth at an auction on Thursday as Mario Draghi is expected to present his new coalition government in the coming days.
Italy’s anti-establishment 5-star movement is beginning to vote on whether to support Draghi’s cabinet, in what could be one of the last steps before a new government takes shape.
The yield on Italian 10-year government bonds fell 4 basis points, after hitting an all-time low of 0.461%.
The Italian / German 10-year yield spread trades at 91.5 basis points, approaching the lowest level in more than five years.
“We are unlikely to witness further declines in Italian bond yields over the next few weeks. But if Draghi gets the support of EU leaders for his coalition government and his projects, we could see further declines, “said MFS fixed income research analyst Annalisa Piazza.
The focus now turns to reading about Americans filing applications for weekly unemployment benefits at a later date.
Reporting by Sara Rossi; Edited by Larry King / Mark Heinrich / Pravin Char