German government bond yields hit record lows deep in negative territory and French 10-year yields turned negative for the first time on Tuesday after the European Central Bank chief said there would be more stimulus if inflation failed to pick up.
The ECB will need to ease policy again, possibly through new rate cuts or asset purchases, if inflation does not head back to its target, Mario Draghi told the ECB’s annual conference in Sintra.
His remarks accelerated the dash for bonds, already in play as investors fret about the world economy, trade wars and simmering Iranian-US tensions.
“We’re not that far from a ‘whatever it takes’moment in the sense that the key message was they will do whatever it takes to avoid a worsening of macro conditions by year-end,” said Didier Borowski, head of global macroeconomic research at Amundi.
Germany’s 10-year bond yield, the benchmark for the bloc, fell eight basis points to a record low of minus 0.329 per cent.
Even news that US President Donald Trump had spoken to Chinese President Xi Jinping and that the United States and China would restart trade talks failed to put a significant dent in yet another stellar bond market rally.
Across the bloc, 10-year bond yields hit new lows.
The Dutch 10-year bond yield hit a record low at minus 0.168%, while French and Austrian 10-year bond yields entered negative territory for the first time. The Draghi effect also sent US 10-year Treasury yields to their lowest since September 2017.