LONDON: Euro zone bond yields fell on Friday as markets shook off any disappointment over the lack of European Central Bank action at its December meeting.
Traders said investors quickly refocused on the likelihood of future government bond purchases. President Mario Draghi said the ECB will decide early next year whether to employ that monetary policy easing tool, known as quantitative easing (QE).
Draghi gave his clearest signal yet on Thursday that QE may be on the cards and said he would not allow opposition from Germany or anyone else to stop it.
At the meeting the ECB left interest rates unchanged at record lows, but slashed its growth and inflation forecasts.
Ten-year German Bund yields, which set the standard for euro zone borrowing costs, fell 2 basis points to 0.75 percent, having risen 3 bps on Thursday, mostly during Draghi's news conference.
"I don't even believe yesterday's move was a repricing of QE probabilities," said Marius Daheim, chief strategist at Bayersiche Landesbank, who expects Bund yields to trade around 0.50 percent when it becomes clear that QE is imminent. "Some people just took profits. Draghi didn't say anything which could be interpreted as discouraging QE expectations."
Spanish and Italian 10-year yields also fell 2 basis points to 1.86 percent and 2 percent, respectively. US non-farm payrolls data later in the day could change the direction for euro zone yields if it prompts investors to bring forward expectations for Federal Reserve interest rate hikes.
But some analysts said the market was already positioned for a strong number, therefore the bigger risk was that investors could be disappointed by a lower figure, which would support bonds. Analysts expect a 230,000 jobs increase.
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