Greek bond yields drop again on PEPP boost

Germany's 10-year government bond yield, the benchmark for the bloc, was up 2.5 bps at -0.339%, while Italian yields rose 3.5 bps to 0.6974%, after having fallen eight bps on Thursday. The European Union announced its first set of bond auctions on Friday, saying it will sell three-month and six-month EU-bills next Wednesday to raise up to 5 billion euros.

Greek government bond yields fell for a second session in a row on Friday as the ECB's cautious stance supercharged Southern Europe and especially Greece, the biggest beneficiary of the central bank's pandemic emergency purchasing program (PEPP). The European Central Bank said on Thursday it would trim emergency bond purchases but was keen to stress it wasn't about to close the money taps, with ECB chief Christine Lagarde saying: "The lady isn't tapering."

Greece was included in ECB bond purchases under the central bank's COVID-19 response for the first time since asset purchases began in 2014, having been barred previously because of its lack of an investment-grade rating. "There's quite a widespread assumption that the ECB will ease further in December - either an increase of the asset purchase program or just extend the PEPP by three or six months," said ING rates strategist Antoine Bouvet.

"If they extend PEPP that is obviously supportive for Greek government bonds in particular. In general, we remain bullish on Southern European debt on the back of ECB support." Greek and Italian government bonds led a broad rally in eurozone debt on Thursday, with yields falling 7-8 basis points across the curve. Greek 30-year yields fell a further 3 bps on Friday to 1.606%.

Five-year yields headed back towards the 0 marks and were trading at 0.009% at 1035 GMT. This reverses some of the sharp yield rises in the run-up to Thursday's ECB meeting as investors bet that rising inflation in the single currency bloc might lead the ECB to claw back some of its extraordinary stimuli.

Other eurozone bond yields were higher 2-3 bps on the day having fallen on Thursday in response to the ECB meeting. Germany's 10-year government bond yield, the benchmark for the bloc, was up 2.5 bps at -0.339%, while Italian yields rose 3.5 bps to 0.6974%, after having fallen eight bps on Thursday.

The European Union announced its first set of bond auctions on Friday, saying it will sell three-month and six-month EU bills next Wednesday to raise to 5 billion euros. The EU first began issuing bonds in earnest last year to help fund the bloc's recovery from the COVID-19 crisis, and the start of an auction process gives it an additional funding route to complete its borrowing needs.