Eurozone borrowing costs fell on Tuesday after a report that the European Central Bank is unlikely to ditch a pledge to keep buying bonds at next week's meeting eased concern about an early end to the bank's stimulus scheme. ECB rate setters need more time to assess the outlook for the economy and the euro, three sources close to the matter told Reuters.
That news bought relief to bond markets, unnerved in the past two weeks by signs that the ECB could be shifting towards an earlier-than-anticipated end to its 2.55 trillion euro ($3.12 trillion) asset-purchase programme. Germany's 10-year government bond yield was down 4 basis points at 0.49 percent, comfortably below five-month highs hit last week.
Thirty-year bond yields tumbled 5 basis points and were set for their biggest one-day fall since December 1. Two year German bond yields were set for their biggest daily fall in six weeks and were last down around 1 bps at 0.60 percent. In an interview published on Tuesday, France's central bank governor Francois Villeroy de Galhau said the rise in the euro was a "source of uncertainty" that ECB rate setters had to monitor, piling upward pressure on bond yields.
Italian and Spanish bond yields were down 4 bps each, with the gap between Italian and German bond yields at its tightest level in over a month at 144 bps.
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