(Recasts with fall in Greek yields, adds analyst comments)
By Emelia Sithole-Matarise
LONDON, April 7 Greek yields fell to a four-year low on Monday as investors responded to stronger signals that the European Central Bank could embark on asset purchases this year to fight potential deflation.
Investors shrugged off the lack of a statement from Moody's on Friday, when it was widely expected to give an update of Greece's credit ratings under new EU rules requiring rating agencies to lay out the dates on which they review a country's creditworthiness.
Some market participants had expected Moody's to lift Greece's ratings by as much as two notches from Caa3, which is nine notches below investment grade. Standard & Poor's and Fitch rank Greece six notches below investment grade at B-.
Demand for the country's bonds remained intact in a broadly rallying market after a German newspaper report on Friday added weight to possible bond-buying stimulus in the form of quantitative easing from the ECB.
This came a day after ECB President Mario Draghi said policymakers were unanimous that asset purchases might be needed to tackle persistently low inflation.
"There was some hope that maybe Moody's would change the ratings or at least change the outlook but they haven't done that," said RIA Capital Market strategist. "Even taking into account the Greek government bond market is doing well and investors are just looking for yield pick-up with the ECB's accommodative stance at this juncture."
Greek 10-year yields were 2 basis points down on the day at 6.12 percent.
They have fallen as much as 50 basis points over the past week as Greece lined up a group of banks for a planned issue of five-year bonds, which could come as early as this week, marking the country's return to the market two years after it defaulted.
Other peripheral euro zone bond yields were mostly lower, with Italian 10-year yields hitting a record low of 3.15 percent on the speculation about potential QE.
German newspaper Frankfurter Allgemeine Zeitung said on Friday the ECB had modelled the effects of buying a trillion euros of assets to ward off deflation.
"At the moment the periphery, especially now we have got this QE talk, is massively supported. That's the most obvious trade in town," a trader said. (Editing by John Stonestreet)