LONDON: Spanish and French bond yields hit record lows in a broad-based euro zone debt rally on Thursday after the minutes of the US Federal Reserve's latest policy meeting suggested it was in no hurry to hike interest rates.
Analysts said the minutes of the Fed's mid-September meeting released on Wednesday indicated concerns about downside risks to the global economy and the dollar's strength would keep the Fed's policy stance accommodative in the near future.
US Treasuries rallied with yields on shorter-dated notes, which trade inversely to their price, falling to their lowest levels since late August.
Euro zone bonds played catch-up on Thursday, extending this week's gains spurred by growing concerns about growth in the currency bloc after grim German industrial data and warnings from the International Monetary Fund fed bets of further ECB monetary stimulus. Poor German trade data reinforced those bets.
Spanish 10-year yields fell 6 basis points to an all-time low of 2.043 percent, as French equivalents hit a record low of 1.216 percent.
"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."
RENZI BOOST
Italian 10-year yields dipped 7 bps to 2.28 percent, not far from an all-time low of 2.255 percent hit 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.
German 10-year yields, the benchmark for euro zone borrowing costs, fell 2.5 bps to 0.88 percent, also a whisker from a record low of 0.867 percent hit late August.
They have headed back towards those all-time lows on signs showing the euro zone's biggest economy was stuttering as counter-sanctions between Russia and Europe over fighting in Ukraine take a toll.
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 has re-ignited expectations the ECB will have to deliver Fed-style QE in coming quarters.
"All factors considered, Bunds look well supported today even with yields at the lower-end of the trading range," Commerzbank strategists said in a note.
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