LONDON: Euro zone bond yields hit two-week lows on Thursday, with Germany's firmly back below zero percent as Federal Reserve and Bank of Japan meetings this week eased fears that central banks are running out of ammunition to bolster growth and inflation.
The Fed on Wednesday left US interest rates unchanged and slowed the pace of future rate hikes it expects.
That followed an abrupt shift in monetary policy by the BOJ to target interest rates on government bonds rather than just money printing.
"This whole discussion about central banks and their willingness to act has faded away in the sense that it's clear they will not throw in the towel," ABN AMRO senior fixed income strategist Kim Liu said.
Bond markets around the world have come under pressure in recent weeks from a perception that the potency of central bank stimulus is ebbing, with the European Central Bank disappointing some investors in early September with a lack of policy action.
But with this week's closely-anticipated meetings in the US and Japan now over, bond yields in the euro area headed back towards levels seen when the ECB last met on September 8.
Germany's benchmark 10-year Bund yield fell more than 5 basis points to minus 0.05 percent - its lowest level in almost two weeks.
That put Bund yields, which have flitted in and out of negative territory this week, decisively below the zero percent mark once more.
Other euro zone bond yields were down 5-7 bps, with yields in most parts of the bloc tumbling to two-week lows.
While the Fed signalled it could raise rates by year-end as the labour market improved further, it cut the number of rate increases expected in 2017 and 2018. It also reduced its longer-run interest rate forecast to 2.9 percent from 3 percent.
That has fuelled a perception that any tightening in US rates will be slow, with money markets pricing in a roughly 60 percent chance of a rate hike in December, according to CME Group's FedWatch tool.
"It is very fashionable to say that central banks are running out of ammunition. But the actions this week by central banks, certainly by the BOJ, indicate that's not the case," Norman Villamin, chief investment officer at Union Bancaire Privee, said.
ECB President Mario Draghi is due to speak later on Thursday, with investors looking for clues on the outlook for euro zone monetary policy.
"We will look out for digressions on the topic of monetary policy to confirm whether the recent sound bites heard on various newswires and from less senior ECB officials, stressing the central bank is in wait and see mode, are also his views," Mizuho said in a note.
Greece was also in focus after the country's prime minister said Greece could be included in the ECB's asset-purchase programme within the next six months.
Two-year bond yields in Greece extended their falls to 6.02 percent, their lowest levels since late 2015.
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