LONDON: Yields on Spanish and a clutch of top-rated euro zone bonds hit record lows on Thursday, after the minutes of the U.S. Federal Reserve's latest policy meeting suggested it was in no hurry to raise interest rates.
Analysts said the minutes of the mid-September meeting, released on Wednesday, indicated concern about a slowing global economy and the dollar's strength would keep Fed policy accommodative for now.
Global equities and U.S. Treasuries rallied with yields on shorter-dated notes, which go down as their price rises, falling to their lowest levels since late August.
Euro zone bonds extended this week's gains, which were fuelled by concern growth is slowing in the region. Grim German industrial data and warnings from the International Monetary Fund led to expectations the European Central Bank would ramp up monetary stimulus. Poor German trade data reinforced those expectations.
Spanish 10-year yields fell 7 basis points to a record low of 2.03 percent. German, French, Austrian and Belgian equivalents also reached record lows.
"The FOMC minutes were more dovish than expected with some members expressing increased concern about the slowdown in Europe as well as Japan and China with a couple also hinting at some anxiety about the dollar's strength," said Nick Stamenkovic, a strategist at RIA Capital Markets.
"Consequently, the market has pushed out the timing of a rate hike from Q2 to Q3 next year and hence Treasuries rallied, led by the short end and that's boosted European fixed income markets today."
GERMAN RECORD
German 10-year yields, the benchmark for euro zone borrowing costs, fell 4 bps to 0.866 percent, breaking a record low of 0.867 percent set in late August. Yields plunged on signs the euro zone's biggest economy was stuttering as counter-sanctions between Russia and Europe over fighting in Ukraine took a toll.
Italian 10-year yields dipped 6 bps to 2.28 percent, not far from their record low of 2.255 percent set in early September. The move was bolstered by Prime Minister Matteo Renzi's successful parliamentary confidence vote late on Wednesday, the most important of his eight-month government, on a contentious labour reform proposal.
Markets will scrutinise ECB President Mario Draghi's presentation in Washington later on Thursday for hints on how soon the central bank could expand its asset purchases - focused for now on covered bonds and asset-back securities - to government bonds, a tool known as quantitative easing (QE).
Record-low inflation expectations and the grim euro zone economic outlook have re-ignited expectations the ECB will have to deliver Fed-style QE in coming quarters.
The last time Draghi spoke in the United States in August, he drew the market's attention to the decline in the ECB's preferred measure of market inflation expectations, the five-year, five-year breakeven forward rate. That measure has fallen to a record low of 1.88 percent since the ECB met last week.
"We think the QE timetable is much more accelerated than what the market is pricing here," said Harvinder Sian, a strategist at RBS.
"You cannot have a central bank head stand up and shout fire on its most crucial component of what it does in terms of its inflation anchoring process and see that go wrong, then don't expect the central bank to act. We think that the probabilities for a move in the next few months is still very high."
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