Yields on the debt of a slew of eurozone countries hit record lows on Friday, on speculation Japanese investors may be switching out of Japanese debt in search of higher returns in the currency bloc. Austrian, Belgian and French 10-year yields all fell to new lows after the Bank of Japan unveiled aggressive economic stimulus on Thursday.
Eurozone bonds offering a premium over benchmark issuer Germany were in demand as weak US jobs data and suggestions from the European Central Bank on Thursday it could cut interest rates drove German borrowing costs to nine-month lows. Analysts expected these trends to extend into next week.
"It seems Japanese investors are making these moves into euro zone semi-core not only because JGB yields are lower and the curve has flattened a lot but also because this new policy could cause further yen weakness. So investors are willing to invest abroad without currency hedging," said Vincent Chaigneau, head of rate strategy at Societe Generale.
Ten- and 30-year debt led the rally as investors favoured longer-dated euro zone bonds after the BOJ said it would double its holdings of long-term government bonds as part of a plan that would see it inject $1.4 trillion into the economy in less than two years. Austrian 10-year yields hit a record low of 1.477 percent, Belgian yields plumbed a historic trough of 1.93 percent and the French equivalent was at a new low of 1.72 percent.
Lower-rated bonds also benefited from the hunt for higher returns, with 10-year Spanish borrowing costs falling 17 basis points to 4.76 percent and Italian yields 20 bps lower at 4.38 percent. German Bund futures hit 146.54, their highest since June 2012, after the US data showed 88,000 jobs were created in March, missing consensus expectations of 200,0000 and last minute talk of 120,000. The Bund contract settled at 146.34, up 38 ticks on the day, with cash 10-year yields down 4 bps at 1.20 percent.
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