Trading Subdued Before Thursday's ECB Meeting

Government bond yields across the euro plunged to their lowest in weeks on Thursday as worries grew about the spread of a lethal coronavirus in China. However, trade was largely softened before the European Central Bank’s first coverage assembly of 2020.

Italian borrowing prices rumbled to five-week lows as an initial concern after the resignation of Luigi Di Maio as chief of Italy’s co-governing 5-Star movement Wednesday gave way to a view that an immediate failure of the ruling alliance was unlikely.

Nervousness in world markets in regards to the spread of a new flu-like virus in China just as thousands prepared to travel for the Lunar New Year vacation sustained demand for higher-rated bonds.

Germany’s benchmark 10-year Bund yield dropped 2.5 basis points to a two-week low around -0.29%, while French 10-year yields plunged to a six-week low at -0.039%.

Comments from Swiss National Bank Chairperson Thomas Jordan that negative rates had been a necessity for the nation added to downward stress on bond yields.

The Swiss 10 year bond yield was last down seven bps at -0.70%, its lowest degree since October.

Trading was generally subdued ahead of the ECB assembly and central bank chief Christine Lagarde’s news conference.

Lagarde is anticipated to declare the beginning of the ECB’s first strategic overview since 2003, which will last for most of the year and span topics from the inflation goal to digital money and the fight against the climate crisis.

The ECB has failed to fulfill its near 2% inflation goal for years, even after an aggressive fiscal stimulus.

A vital market measure of long-term eurozone rate expectations dropped to its lowest level in around five weeks at 1.3015% before the ECB meeting.