[LONDON] Yields in three eurozone countries' bonds hit record lows on Friday after European Central Bank President Mario Draghi gave his strongest signal yet that government debt purchases may not be far away.
Ten-year bond yields in Ireland, Italy and Austria hit the lows, while most of their regional peers were near their troughs after Mr Draghi said "excessively low" inflation had to be raised quickly by whatever means necessary.
He said the ECB would recalibrate the size, pace and composition of its asset purchases if its recent move to buy securitised private debt is not enough to lift inflation back to the near 2 per cent target from 0.4 per cent currently.
Italian 10-year yields fell as low as 2.246 per cent, about 5 basis points lower on the day. Irish and Austrian yields hit record lows of 1.52 per cent and 0.953 per cent, respectively.
"He has sharpened up his tone when it comes to further measures," said Lauri Haelikkae, fixed income strategist at SEB. "They are now starting to prepare the market."
Spanish yields were 1 bps above all-time lows at 2.055 per cent, while German Bund yields, the region's benchmark, were not far away either at 0.78 per cent.
Government bond purchases are strongly opposed in Germany and Bundesbank chief Jens Weidmann may react to Mr Draghi's comments in a speech later in the day at the same event.
The Bundesbank is seen as a big obstacle in the way of what is known as quantitative easing or QE. "There seems to be more coherence within the government council behind sayings that it could do QE if necessary. That does not necessarily mean that they're ready to at this stage," said Philip Shaw, chief economist at Investec.
Mr Draghi's comments lifted a measure of the market's long-term inflation expectations off one-month lows.
The five-year, five-year breakeven forward - which now shows where markets expect 2024 price growth forecasts to be in 2019 and is closely watched by the ECB to gauge its credibility in the financial world - rose to 1.81 per cent from 1.80 per cent before the speech.
The measure was almost 1.90 per cent less than two weeks ago.
Mr Draghi noted the volatility of inflation-linked financial products and said he wanted to focus on the risk that a too prolonged period of low price growth becomes embedded in inflation expectations. "If they don't do QE the credibility of the inflation target is at risk," Mr Haelikkae said.