Euro Bonds Spreads Tighten Sharply as ECB Soothes Breakup Fears

imageForex11 hours ago (Mar 19, 2020 03:49AM ET)

(C) Reuters.

By Geoffrey Smith — Eurozone government bonds surged on Thursday, while yield spreads over the German benchmark shrunk dramatically, after the European Central Bank moved to stem growing concerns over the currency union’s stability.

The 10-year yield spread between Italian and German government bonds shrunk by 83 basis points to 185 basis points, while the Spanish and Portuguese spreads compressed by 24 and 20 basis points respectively.

The ECB had announced late on Wednesday plans to buy an additional 750 billion euros ($825 billion) of government and private-sector bonds, saying it wouldn’t tolerate a fragmentation of eurozone capital markets. The measures is bigger in absolute terms than any taken during the euro debt crisis that started 10 years ago.

By 3:45 AM ET (0745 GMT), the yield on German Bunds had fallen 12 basis points to -0.35%. The Italian 10-year yield fell 77 basis points to 1.53%.

Importantly, the ECB also said it would lift, if necessary, its previous self-imposed rules limiting the amount of individual country debt it can buy under the program. It also explicitly said that Greek government debt would be eligible for the program.

The euro was down 0.5% against the dollar at $1.0846.

Euro Bonds Spreads Tighten Sharply as ECB Soothes Breakup Fears

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