| LONDON, July 15
LONDON, July 15 Euro zone bond yields slipped on
Tuesday after European Central Bank President Mario Draghi
reaffirmed the bank's readiness to print money if necessary to
support the region's economic recovery.
With concerns over the financial health of Portugal's
biggest bank easing, the market was steadier, putting
lower-rated euro zone bonds on a firmer footing after last
Draghi said late on Monday that policymakers were prepared
to use unconventional measures to address the risk of too
prolonged a period of too low inflation. Quantitative easing, or
money printing to buy assets, was part of the bank's mandate, he
said. He also said a stronger euro exchange rate was a risk to
the sustainability of the euro zone recovery.
The ECB's ultra-easy monetary policy and the prospect that
it may eventually embark on an asset-buying programme to support
the region's feeble economic growth has fueled a relentless hunt
for yield in peripheral bond markets.
Italian and Spanish 10-year yields were each down 3 basis
points at 2.86 percent and 2.75 percent
Greek yields were 3 bps lower at 6.24 percent
while their Portuguese equivalents dipped 1 basis point to 3.82
percent after Banco Espirito Santo took
steps at the weekend to reassure investors of its stability.
"With the ECB signalling that it will continue to maintain
an easing bias with the possibility of QE in coming months,
peripheral spreads probably have scope to come further in," said
Nick Stamenkovic, a bond strategist at RIA Capital Markets.
"We prefer Italy and Spain to Portugal at this juncture ...
Whilst the worries about BES seem to have dissipated clearly
this idiosyncratic risk has raised concerns that there could be
further problems coming in the future. Spain by contrast is much
further forward in bank recapitalisation while Italy is making
German 10-year yields, the benchmark for euro zone borrowing
costs, were 1 basis point down at 1.19 percent
ahead of Germany's ZEW sentiment index for July, which is seen
falling for a seventh consecutive month.
U.S. Federal Reserve Chair Janet Yellen's testimony to the
Senate will also be watched after the June Fed minutes suggested
policymakers were in no rush to raise interest rates.
"The market is positioned for a dovish view from Yellen so
the risk is she could be slightly more hawkish than anyone is
anticipating. But overall, just like with Draghi, we still think
Yellen will stick to a dovish line," said Mathias van der Jeugt,
a strategist at KBC.