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Worldwide bond market rally sputters after ECB boosts stimulus

A worldwide bond market rally slowed this week as policy makers led by the European Central Bank stepped up efforts to strengthen their economies.

[NEW YORK] A worldwide bond market rally slowed this week as policy makers led by the European Central Bank stepped up efforts to strengthen their economies.

The effective yield on the Bank of America Merrill Lynch Global Broad Market sovereign plus index climbed to 1.18 per cent from the record low of 1.14 per cent set on Jan 19. Treasuries headed for their first weekly decline this month. Japanese bonds rebounded Friday after tumbling Thursday.

"The rally was too rapid," said Yoshiyuki Suzuki, head of fixed-income in Tokyo at Fukoku Mutual Life Insurance, which oversees the equivalent of US$52.4 billion. "I don't have a big fear for the worldwide economy. ''At the same time, debt purchases by the ECB and the Bank of Japan will maintain demand for bonds, he said.

The U.S. 10-year yield was little changed at 1.85 per cent, according to Bloomberg Bond Trader data. The price of the 2.25 per cent note due in November 2024 was 103 18/32. The yield rose two basis points this week, climbing for the first time since the period ended Dec 26.

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Japan's 10-year yield dropped six basis points to 0.25 per cent, almost unwinding a 6 1/2 -basis-point surge on Thursday. Australia's rose three basis points to 2.63 percent.

The ECB will buy government bonds as part of an asset- purchase program worth about 1.1 trillion euros (US$1.25 trillion), President Mario Draghi announced Thursday in Frankfurt.

European bonds rallied on the news. German 10-year yields headed for a seventh weekly decline, and five-year yields are almost zero. French 10-year yields slid to a record 0.59 per cent.

Canada and Denmark both cut interest rates this week. The Bank of Japan boosted a lending program and stuck to its plan to increase the monetary base at an annual pace of 80 trillion yen (US$675 billion).

Bill Gross said the ECB's decision will benefit Treasuries, supported by higher US yields and a ''strong" dollar. Gross, the former Pacific Investment Management investor who now runs the Janus Global Unconstrained Bond Fund, made his comments on Twitter.

Demand for US assets pushed the Bloomberg Dollar Spot Index to its highest level FriFday since the gauge's inception in Dec 31, 2004.

Dan Fuss, who manages the Loomis Sayles Bond Fund, said it has become "harder" for the Federal Reserve to raise US interest rates because higher yields would fuel the currency rally.

"More money comes into the dollar," Mr Fuss said on Thursday in New York on Bloomberg Television. "Where are you taking the money from? Nearly every place else in the world. Who needs the money in their economy? Every place else in the world." Yields show the outlook for inflation is picking up. Investors anticipate global consumer prices will rise at an average pace of 1.15 per cent a year, according to Bank of America data. The figure has risen from 0.99 earlier this month, which was the lowest level since 2010.