Bonds: Periphery bond yields drop sharply following remarks from Draghi

These were the movements in some of the most widely followed sovereign bond yields:

US: 2.31% (-3bp)

UK: 2.05% (-5bp)

Germany: 0.77% (-3bp)

France: 1.11% (-3bp)

Italy: 2.21% (-9bp)

Spain: 2.01% (-9bp)

Japan: 0.46% (-1bp)

Portugal: 3.0% (-13bp)

Greece: 7.93% (-33bp)

A surprise rate cut decision from the People’s Bank of China (PBoC), its first since July 2012, and unexpectedly dovish remarks from the president of the European Central Bank boosted bond prices on Friday, particularly in the Eurozone’s periphery.

In parallel, the US Treasury yield curve flattened, with the difference between the yields on two-year and 30-year government securities falling to a two-year low.

That came ahead of the US auctioning $105bn worth of notes next week. Data due out on Friday was also expected to show that consumer price inflation in the single-currency area dropped to a 0.3% year-on-year pace in November, although the core rate of CPI is expected to hold its ground at 0.7% year-on-year.

Speaking in Frankfurt, ECB President Mario Draghi said the central bank would “do what we must” to help address dangerously low inflation and a stagnant economy. The ECB on Friday started buying asset-backed securities in an attempt to encourage banks to lend.

"Altogether, this implies that we are getting closer to the point at which the ECB may decide that one of the contingencies for further substantial action has been triggered,” Barclays Research said of Draghi’s remarks.

Irish 10-year yields slipped below 1.5% for the first time since 1991, according to Bloomberg data.

Not late afterwards on Friday morning, China’s central bank cut its one-year lending rate by 0.4 percentage points to 5.6%. Following the announcement, economists from several first-tier research houses weighed in forecasting further measures from authorities in Beijing, including JP Morgan Chase, Barclays, ANZ Bank and UBS.

However, in its statement the PBoC claimed the decision on interest rates “doesn’t mean any change in monetary policy direction”. Economists at Capital Economics, for one, took the PBoC at its word, explaining to clients that “accordingly, this doesn’t seem to be the first step in a prolonged loosening cycle.”

Gilts largely brushed off a warning from the Office for Budget Responsibility, according to whom UK tax receipts are set to undershoot forecasts.

Data out earlier in the day revealed that the UK’s public sector net borrowing, excluding banking groups, decreased to £7.7bn in October from a downwardly revised £11.2bn registered in September.

Lastly, in the evening ratings agency Standard&Poor’s reaffirmed its AA+ rating on the long-term sovereign debt of the Netherlands, with a stable outlook, while Fitch Ratings did the same with its own B rating for Greece.