Market snapshot: The ECB cuts interest rates as Draghi unveils stimulus package

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The European Central Bank (ECB) announced today at 12:45pm GMT that three key interest rates would be cut: the main refinancing interest rate to 0.15%, the deposit facility rate to -0.10% and the marginal lending facility rate to 0.4%. The move is intended to ease disinflationary pressures in the Eurozone.

In a press conference after the announcement, ECB president Mario Draghi did not rule out further technical adjustments to interest rates, but described today’s cuts as “the lower bound… for all practical purposes”. And in an effort to encourage bank lending, Draghi unveiled a program under which the ECB will offer four-year loans to banks at low rates, provided those funds are earmarked for lending.

While the stimulus measures announced did not include quantitative easing, Draghi stressed that the ECB could take further action in future if disinflationary pressures increase. “If required, we will act swiftly with further monetary policy easing,” said Draghi. “A broad-based asset purchase programme is certainly part of our possible options.”

  • In Germany, 10-year benchmark bid-yields initially fell 4.2 bps from 1.394% at 12:46pm to 1.352% at 12:52pm, before rising to 1.442% at 1:36pm and falling again to 1.357% at 4:30pm.
  • A similar pattern was evident in French 10-year benchmark bid-yields, which fell 3.9 bps from 1.843% at 12:46pm to 1.804% at 12:52pm, before rising to 1.867% at 1:46pm and falling to 1.801% at 4:30pm

But in peripheral markets, Tradeweb data shows that yields on 10-year benchmark bonds clearly moved downwards.

  • In Italy, bid-yields fell 6.5 bps from 3.005% at 12:46pm to 2.940% at 4:30pm.
  • In Spain, bid-yields fell 5.1 bps from 2.883% at 12:46pm to 2.832% at 4:30pm.
  • In Portugal, bid-yields fell 2.9 bps from 3.694% at 12:46pm to 3.665% at 4:30pm.
  • In Greece, bid-yields fell 10.2 bps from 6.350% at 12:46pm to 6.248% at 4:30pm.
  • In Ireland, bid-yields fell 4.5 bps from 2.629% at 12:46pm to 2.584% at 4:30pm. 

German 10-year government bond bid-yields in trading today on Tradeweb:

 

Italian 10-year government bond bid-yields in trading today on Tradeweb:

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