LONDON: Euro zone bond yields fell on Thursday as the prospect of an imminent U.S. rate hike failed to shake investor confidence that the European Central Bank is just weeks away from announcing further stimulus.
Minutes from the Federal Reserve's last policy meeting showed a solid core of policymakers had rallied behind the country's first hike in nearly a decade, firming bets for liftoff on Dec. 16.
Some strategists had previously suggested a rate rise from the United States would weaken the euro, taking the pressure off the ECB to ease. Now it seems that, whatever happens, investors predict the ECB will announce additional measures on Dec 3.
"The ECB has generated asymmetry in the market," Mizuho strategist Peter Chatwell said.
"If any bad data were to materialise the market would price that the ECB would ease aggressively, whereas even if good data were to arise then the pre-commitment has been given so they would still ease policy."
German 10-year bond yields fell 2 basis points to a three-week low of 0.488 percent, while all other euro zone yields were 1-2 bps lower on the day.
German two-year yields were flat at -0.37 percent , just off a record low touched earlier this week.
The ECB will publish minutes from its October policy meeting, which firmed up easing bets when president Mario Draghi pledged to fend off threats to Europe's growth and inflation outlook.
The announcement at 1230 GMT may offer investors another insight into what might be on the cards for December. Markets are already pricing in a 10 bps cut to the deposit rate and many also expect an extension of the central bank's bond-buying programme.
"At the very least, today's latest iteration may offer further nuances into the ongoing debate on the appropriate policy stance," said RBC's chief European macro strategist Peter Schaffrik.
The sharp decline in long-term euro zone yields and curve flattening mirrored a similar move in U.S. Treasury yields after the Fed minutes, signalling that investors fear liftoff may be premature or that subsequent rate rises will be modest.
"Further flattening into the rate hike and beyond will be as clear a signal as the market can give that they fear a policy error, and explains why the Fed is doing so much explaining," Rabobank said in a note to clients.
The fall in euro zone yields was more surprising given the deluge of bond sales due on Thursday. Yields tend to rise ahead of bond auctions as investors make room in their portfolios for the new supply.
France and Spain are due to sell around 12 billion euros of bonds on Thursday morning, and the United States is due to auction debt later in the day.
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