Euro zone bond yields continue to enjoy Fed put

LONDON: Core euro zone bond yields struggled to find uplift from the 2-1/2 year lows hit on Thursday after the Fed became the second major central bank to adopt a more dovish stance, signalling that central banks are looking to keep monetary conditions easy.

Bond yields fell across developed markets after the U.S. Federal Reserve on Wednesday brought its three-year drive to tighten monetary policy to an end.

Ten-year U.S. Treasury yields held close to 2.5 percent in early trade on Friday, while Japanese government bond (JGB) yields plunged to their lowest since November 2016.

European bonds also extended a strong rally which began after the European Central Bank surprised markets with a more accommodative monetary stance on March 7, adding to a growing belief that all major central banks are now looking to keep monetary conditions loose.

Germany's 10-year bond yield hurtled towards zero percent on Thursday, dropping to 0.034, its lowest since late 2016. It rose one basis point in early trade to 0.05 percent on Friday.

French 10-year government bond yields, which fell 5.5 basis points on Thursday to 0.40 percent, held close to those levels on Friday.

Though looser monetary conditions and lower rates are good for bond holders, they are a result of concerns about global growth which is evident in the shape of the U.S. yield curve.

The spread between the three-month Treasury bill yield and the 10-year note yield shrank to its narrowest level since August 2007 as the American economy shows signs of contraction.

The German yield curve is also flattening, though economists say there is less correlation between economic growth and the shape of the yield curve there.

At just 58 basis points, the difference between the two and 10-year Germany bund yield lowest since October 2016, and has fallen from 130 basis points in February this year.

Brexit also remains in focus with the European Council on Thursday voting to delay Britain's exit by two weeks until April 12, with a possible extension to May 22 if lawmakers approve the withdrawal agreement next week.

The vote has prompted some banks to increase forecasts of a no-deal Brexit. Goldman Sachs on Friday cut the chances of May's deal being ratified to 50 percent from 60 percent, and raised the chances of a "no-deal" Brexit to 15 percent from 5 percent.

Ten-year British government bond yields rose two basis points in early trade to 1.085 percent, having fallen more than nine basis points a day earlier.