LONDON: German bond yields dropped on Thursday after the Bank of Japan surprised markets by leaving policy unchanged and the US Federal Reserve gave no signal it would raise interest rates soon.
Sharp falls in Asia's biggest stock market spilled over to European bourses, sending investors into the refuge of German bonds and other safe havens including the Japanese yen.
German 10-year bond yields shed 5 basis points to 0.24 percent -- set for their biggest daily fall in over five weeks -- after similar drops in other global bond benchmarks in the US and Japan.
"There is disappointment in markets because they were expecting something decisive from the BOJ and...the Fed are not going to give much away because the world can be a much different place over the next six weeks," Credit Agricole strategist Orlando Green said.
Along with leaving rates unchanged, the Bank of Japan also maintained the pace of its asset purchase programme on Thursday.
In addition, Governor Haruhiko Kuroda denied reports from last week that he was thinking about applying negative rates to lending to financial institutions.
This thwarted hopes of stimulus, driving investors towards bonds which had already been boosted by the muted rate outlook signals from the Fed.
While the US rate-setting committee did not rule out a summer hike at their meeting on Wednesday, they acknowledged that economic growth seemed to have slowed.
"The Fed didn't mention June at all, meaning that if they skip that, it will be September which is close to the election, so we are talking December now," said Soeren Moerch, head of fixed income trading at Danske Bank.
"That is a very big relief for fixed income markets."
All other euro zone yields fell on Thursday, although Spain's lagged slightly on fears political paralysis could start to weigh on the country's recovery.
Spain's unemployment rate ticked up slightly to 21 percent in the first three months of the year, a reminder of the economy's deep-seated problems as voters prepare for a second parliamentary election expected in June.
"The extra two months of political uncertainty means there is going to be an ongoing drag on the economy and a reluctance to invest heavily," Mizuho strategist Peter Chatwell said. Greek yields recovered from a sharp rise a day earlier as Athens and its creditors hit a snag over reform measures needed to unlock financial aid it requires to pay IMF loans maturing in June and July.
Talks due to take place on Thursday have been delayed by differences over what measures Athens would take if it fails to reach fiscal targets by 2018.
Creditors, including the IMF and European institutions, want those measures made law immediately.
The head of euro zone finance ministers said the Eurogroup could meet next week or the week after to discuss Greece.
Elsewhere, Belgium has raised 13 billion euros of combined demand for seven- and 50-year bonds it is selling on Thursday, IFR reported, while Italy sold 7.75 billion euros over three bonds at auction.
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