ECB bond buying, US data pin top-rated euro zone bond yields near record lows

Yields on top-rated euro zone bonds fell towards record lows on Friday on central bank buying and after data suggested there was enough downward pressure on US inflation to keep the Federal Reserve from raising rates in June. US import prices dropped in March as rising petroleum costs were offset by declining prices for other goods, a sign of muted inflation that supports the view that the Fed will probably not raise rates in June as previously thought.
German 10-year yields, the benchmark for euro zone borrowing costs, fell 2 basis points to 0.145 percent, a whisker from their low of 0.14 percent hit on Thursday. Eight-year Bund yields were a touch higher after dipping into negative territory on Thursday.
Other top-rated euro zone 10-year yields were also within sight of all-time troughs.
"We've had buying activity this week from the central banks and that has driven bond prices up (and yields down)," said Christop Kutt, head of market strategy and interest rate derivatives at DZ Bank.
"The Fed is also in focus ... We are comfortable with a rate hike in September. The drag on inflation as regards the strengthening of the US dollar, if you put all those together it speaks more in favour of a later rate hike."
Economists in a Reuters poll this week said the European Central Bank was "about right" in claiming its trillion-euro quantitative easing programme, which kicked off last month and drove euro zone borrowing costs to record lows, was having a positive impact before it had even begun.
The strength of ECB buying is expected to temper the impact on Bund yields of a potential rate hike this year from the Fed, especially as supply of new bonds from Germany is sparse.
Eight-year Bund yields' dip below zero this week is spurring speculation that 10-year yields may soon follow, aided by lingering concerns over whether Greece can satisfy its creditors on economic reform plans required to access aid before it runs out of cash.
There was some market relief on Thursday after Athens repaid a crucial 450 million-euro loan to the International Monetary Fund, easing fears of an imminent default. That drove Greek yields to their biggest weekly decline in almost two months. Markets in Athens were closed on Friday for the Orthodox Easter holiday.
Euro zone partners have given Greece six working days to improve a package of proposed reforms before the bloc's finance ministers consider whether to release more funds to keep the country afloat when they meet on April 24.
"There was a bit of relief that they made that repayment yesterday and it looks like they're going to be able to pay that T-bill next week," Rabobank fixed income strategist Lyn Graham-Taylor said. "But the market is whipping around. We're very, very far from any sort of resolution that gets us through the next six months to a year."