* ECB rate cut supports spread tightening against Bunds
* Bund futures fall, but stay close to record highs
* Investors book profits before U.S. non-farm payrolls
By Marius Zaharia
LONDON, May 3 French, Austrian and Belgian bond
yields hit record lows and other euro zone yields also fell on
Friday, as bets on further monetary easing increased appetite
for assets offering higher returns than German debt.
Other bonds' yield spreads over German Bunds were expected
to narrow further after the European Central Bank cut its
refinancing rate on Thursday and President Mario Draghi said it
was ready to cut the deposit rate below zero.
Debt markets showed little reaction after ECB policymaker
Ewald Nowotny said a negative deposit rate - charging banks for
holding their money with the ECB - was not a near-term option.
"Inflation fears are basically vanishing and investors are
buying the whole euro zone fixed income. (Bets of further
easing) are pretty much intact," said Christian Lenk, rate
strategist at DZ Bank in Frankfurt.
French, Austrian and Belgian
10-year yields fell to record lows of 1.65
percent, 1.435 percent, and 1.903 percent, respectively.
The Italian/German 10-year yield spread
narrowed to its tightest since July 2011 at 251
basis points. Spanish 10-year yields fell below 4
percent for the first time since Oct. 2010, and equivalent
Portuguese yields hit 2-1/2 year lows.
"The ECB was very dovish yesterday ... It overdelivered,"
one trader said. "Obviously that's supportive for spreads."
Bund futures fell 31 ticks to 146.85, with
investors positioning for the U.S. nonfarm payrolls report by
booking profits. The future hit a record high on Thursday.
April payrolls, due at 1230 GMT, are expected to have
increased by 145,000 jobs - too little to quash fears the U.S.
economy is losing momentum.
"If we see disappointing U.S. non-farm payrolls and we get
fears that the economy is weak as well, then maybe not today,
but in the next few days we will break into uncharted territory
in German yields as well," DZ Bank's Lenk said.
German 10-year yields were 2 bps higher at
1.18 percent, just above last July's record low of 1.126