After Draghi Talk EUR and Yields Fell

Yields on lower-rated euro zone bonds fell to record lows and the euro slid further on Friday as investors positioned for more monetary stimulus from the European Central Bank.

An upgrade by Standard & Poor’s of its credit-rating outlook for Portugal bolstered the positive sentiment as the country prepares to exit its international bailout this month.

Investors are betting the ECB will cut interest rates next month, opening the way for further possible steps, such as a bond-buying program. ECB President Mario Draghi said on Thursday the bank was ready to act in June if updated inflation forecasts merit it.

Yields on Italian, Spanish and Irish 10-year bonds all hit record lows: 2.9 percent, 2.87 percent and 2.65 percent respectively. The euro fell another 0.4 percent from Thursday’s U.S. close.

“With the words from Draghi yesterday, there is a good chance that peripheral yields continue to move lower in the next month or two,” said Stewart Richardson, a partner at macro hedge fund RMG Wealth Management.

“There has been quite an about-turn in thinking in the last 24 hours. We think the chances are much higher now that we get some sort of action from the ECB, and this is primarily done to bring down the euro.”

via Reuters

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Alfonso Esparza

Alfonso Esparza

Senior Currency Analyst at Market Pulse
Alfonso Esparza specializes in macro forex strategies for North American and major currency pairs. Upon joining OANDA in 2007, Alfonso Esparza established the MarketPulseFX blog and he has since written extensively about central banks and global economic and political trends. Alfonso has also worked as a professional currency trader focused on North America and emerging markets. He has been published by The MarketWatch, Reuters, the Wall Street Journal and The Globe and Mail, and he also appears regularly as a guest commentator on networks including Bloomberg and BNN. He holds a finance degree from the Monterrey Institute of Technology and Higher Education (ITESM) and an MBA with a specialization on financial engineering and marketing from the University of Toronto.
Alfonso Esparza