NEW YORK: US Treasury prices rose on Thursday after the European Central Bank announced more bond purchases than expected, boosting global liquidity that is expected to support US and European bonds.
The ECB said it would buy government bonds from this March until the end of September 2016 despite opposition from Germany's Bundesbank and concerns in Berlin that it could allow spendthrift countries to slacken economic reforms.
"It's likely to impact yields everywhere," said Aaron Kohli, an interest rate strategist at BNP Paribas in New York. "When you put this much stimulus into the markets its going to go other places that you hadn't intended, and one of those places is going to be US debt as well."
The bond purchases will further reduce the supply of high-quality debt, which has supported long-dated Treasuries as investors reach for higher yields. That is likely to continue to support bonds even as investors also anticipate improving growth and inflation that should eventually push yields higher.
"It's bullish for Treasuries," said Kim Rupert, managing director of Action Economics in San Francisco. "We've seen record low yields in the periphery in Europe, and that will provide an underpinning for Treasuries for widening spreads."
Benchmark 10-year notes were last yielding 1.87 percent, after falling as low as 1.82 percent earlier, down from 1.94 percent before the announcement. Thirty-year bonds yielded 2.46 percent, after going as low as 2.41 percent, down from 2.54 percent before the ECB announcement.
German 10-year government bond yields hit record lows of 0.377 percent after the ECB press conference.
The ECB's stimulus may also provide a backstop that will help the Federal Reserve raise interest rates, which many expect to begin in the first half of this year.
"It's a really big positive for the Fed, it gets another major central bank into the system of trying to prop up the markets and support risk sentiment," BNP's Kohli said.
The next major focus for the market is the Fed's Jan. 28 policy announcement at the completion of its two-day meeting.
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