UPDATE 4-German 10-yr yield slumps to -0.30% on Draghi's stimulus klaxon

Reuters

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    * Draghi opens door to rate cuts, more asset purchases
    * German Bund yield hits new record low
    * French 10-year bond yield turns negative
    * Italian debt benefits most from stimulus hopes
    * ZEW survey underlines difficult backdrop

 (Updates with Trump comments)
    By Abhinav Ramnarayan
    LONDON, June 18 (Reuters) - 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, Portugal.  urn:newsml:reuters.com:*:nECBSINTRA  urn:newsml:reuters.com:*:nF9N20D01R
    His remarks accelerated the dash for bonds, already in play
as investors fret about the world economy, trade wars and
simmering Iranian-U.S. 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  DE10YT=RR , the benchmark for
the bloc, fell eight basis points to a record low of minus
0.329%. 
    Even news that U.S. 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.  urn:newsml:reuters.com:*:nL2N23P0IS 
    Across the bloc, 10-year bond yields hit new lows. 
    The Dutch 10-year bond yield hit a record low at minus
0.168%  NL10YT=RR , while French and Austrian 10-year bond
yields  AT10YT=RR   FR10YT=RR  entered negative territory for
the first time. The Draghi effect also sent U.S. 10-year
Treasury yields  US10YT=RR  to their lowest since September
2017.     
    "He has been quite bold - not that all these measures were
not already hinted at, but today is probably the first time we
hear directly from Draghi that all these tools are considered
available," said UniCredit rates strategist Luca Cazzulani. 
    "We are facing a difficult situation globally and inflation
expectations in the euro zone are extremely low. Also, the
markets are pricing in bold action from the Fed; in this
environment it is difficult for the ECB to stand still."
    A closely watched survey by the ZEW Institute showed the
mood among German investors deteriorated sharply in June.
 urn:newsml:reuters.com:*:nAPN02S76S
    Money market investors now fully price in an ECB rate cut
for December 2019. Just two weeks ago, investors priced a 60%
chance of a 10 bps rate cut by the end of the year. 
    The euro  EUR=EBS  weakened across the board, falling to a
two-week low versus the dollar and to a 1-1/2 week low versus
the Swiss franc  EURCHF= . 
    Trump, who has persistently called on the Fed to ease
monetary policy, accused Draghi of trying to weaken the euro to
gain an unfair advantage in trade.
    The main euro zone stocks index  .STOXXE  reversed early
losses as the euro fell. It was last up 1.8%.
    Inflation expectations, on the other hand, were boosted by
talk of more stimulus, with a key market gauge the five-year,
five-year break-even rate rising sharply to just above 1.23%
from 1.144% on Monday.  EUIL5YF5Y=R 
    Speaking later in the day, Draghi said some market-based
measures of inflation expectations have lost significance "due
to technical conditions".  urn:newsml:reuters.com:*:nF9N20D01R
    In Italy, bond yields dropped 12-20 bps across the curve.
The euro zone's third-largest economy is seen as one of the
biggest beneficiaries of ECB largesse. 
    "From our perspective the ECB doesn't need to rush into
action," said Marchel Alexandrovich, European Financial
Economist at Jefferies. "There is still room to sit back and
watch the data." 
    Italy's 10-year bond yield  IT10YT=RR  fell 20 bps lower to
2.09%, set for its biggest one-day drop in about a year. Its
yield spread over Germany  DE10IT10=RR  was at its tightest
level since March at around 237 bps. 

    <^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^
Draghi sends Bund yield to new record low     https://tmsnrt.rs/2XXH7Rc
forward inflation swap    https://tmsnrt.rs/2IpUFja
    ^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^>
 (Reporting by Abhinav Ramnarayan; Additional reporting by
Saikat Chatterjee,  Helen Reid and Dhara Ranasinghe ; Graphics
by Sujata Rao; Editing by Gareth Jones)
 ((Abhinav.Ramnarayan@thomsonreuters.com; 0044 751 745 1044;))

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