UPDATE 2-Dovish ECB pushes German 10-year yield further into sub-zero territory

* German Bund yield at new low below zero percent * China data, dovish RBNZ add to global growth worries * ECB’s Draghi says rate hike timing can be delayed further * Euro zone periphery govt bond yields tmsnrt.rs/2ii2Bqr (Updates with ECB comments, chart, analyst quote) By Dhara Ranasinghe LONDON, March 27 () – Germany’s long-dated borrowing costs fell to 2-1/2-year lows below zero percent on Wednesday after the European Central Bank said it could further delay a rate hike if needed and look at measures to offset the impact of negative interest rates. Unexpected news overnight from New Zealand’s central bank that its next move in rates was more likely to be a cut, and weak China data, triggered a fresh move lower in yields at the start of the European session. The rally in bonds prices, and fall in yields, gathered pace after comments from ECB President Mario Draghi. German 10-year bond yields fell over four basis points to a low of minus 0.06 percent and are now roughly 15 bps away from record lows hit in 2016. In a sign that investors are moving further up the curve in search of some yield, 30-year German yields fell to 0.52 percent , also their lowest since late 2016. French and Dutch 10-year bond yields hit 2-1/2-year lows , while Spain’s 30-year bond yield fell to a one-year low at 2.19 percent. “The bond market reaction is not necessarily consistent with the ECB executing a lower for longer rates policy but more consistent with it moving into a return of asset purchases,” said Peter Chatwell, head of rates at Mizuho. Growth concerns are also reflected in lower inflation expectations. A long-term gauge of euro zone inflation expectation has fallen 11 basis points in the past week to 1.37 percent. Analysts said Draghi’s comments had also boosted talk that the central bank may be considering steps such as a tiering of interest rates to ease pressure on banks. Addressing complaints from banks that negative rates are hurting bank lending, Draghi said the ECB would look at whether mitigating measures are needed but said that negative weak profits are not an automatic result of low rates. “Certainly this headline has made an impact (on bank stocks). There is this story of tiering doing the rounds,” said Giuseppe Sersale, strategist at Anthilia Capital in Milan. Euro zone banking stocks rallied after Draghi’s speech and were last up 0.2 percent on the day while broader stock markets were down 0.25 percent. Euro zone bond yields have fallen sharply since the ECB earlier this month pushed back its guidance for a rate rise and flagged a fresh round of cheap bank loans to help the economy. That drop in yields — matched by declines in yields in Tokyo, London and New York — gathered pace last week after the U.S. Federal Reserve signalled a halt to its rate increases, weak data sparked recession fears and the U.S. yield curve inverted for a the first time since 2007. “We think Europe will rebound, given the general global economic activity it’s hard to see the whole of the euro zone going into recession,” said Justin Onuekwusi, portfolio manager at Legal and General Investment Management. As risk-off sentiment took hold of world markets again, Italian bond yields shot up, with analysts saying a report that Italy could cut its growth forecast again weighing on sentiment. Reporting by Dhara Ranasinghe, Additional reporting by Sujata
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