LONDON: Government bond yields fell to new record lows across the euro zone on Friday on expectations the European Central Bank is set to fight slowing inflation with new stimulus measures in the new year.
German, French, Italian, Spanish, Irish, Dutch, Portuguese, Belgian and Finnish yields hit record lows after ECB President Mario Draghi said the bank would act to keep consumer prices stable.
German five-year yields fell below zero and 10-year Bund yields fell below 0.50 percent for the first time.
The gap between 10-year Spanish and German yields fell below 100 basis points for the first time since 2010.
Economists polled by Reuters expect the euro zone to report consumer prices fell in December by 0.1 percent when data is released on Jan. 7. That could prompt the ECB to begin a programme of sovereign bond purchases - so-called quantitative easing - as early as its first meeting, on Jan. 22. "It is quite clear that the ECB is preparing to do more and expectations are centring on the January meeting," said Nordea strategist Jan von Gerich.
"The way markets have developed, it is a clear signal that the ECB cannot afford to wait that much longer." High-yielding bonds in the bloc's southern periphery are expected to outperform those with lower yields if the ECB launches such a scheme.
Yields fall as prices rise. Italian and Spanish 10-year yields fell about 10 basis points to 1.77 percent and 1.52 percent. Portuguese yields dropped 23 bps to 2.47 percent. Bund yields dipped 5 bps to 0.49 percent.
Greek debt yields - shaken last week by the prospect of elections this month that could catapult the anti-austerity Syriza party to power - fell 41 bps to 9.23 percent.
Many analysts doubt that problems in Athens will spread as they did in 2011-12, when the high debt of a number of euro zone countries prompted panic selling after the global financial crisis. But the prospect of Greece veering away from reform promises has raised the ire of some euro zone politicians.
A senior member of German Chancellor Angela Merkel's party urged the ECB not to pour money into struggling euro zone states through bond purchases.
Some analysts, like Rabobank's Lyn Graham-Taylor, believe the timing of the Greek election, set for Jan 25, may encourage the ECB to delay any policy action until March.
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