Bonds: ECB gives 'green light' to summer carry trades, BofA says

These were the movements in some of the most widely-followed 10-year sovereign bond yields:

US: 2.25% (-2bp)
UK: 1.21% (+1bp)
Germany: 0.53% (-1bp)
France: 0.78% (-3bp)
Spain: 1.49% (-7bp)
Italy: 2.11% (-8bp)
Portugal: 3.01% (-6bp)
Greece: 5.26% (+0bp)
Japan: 0.08% (+0bp)

Euro area bonds, especially those on the periphery, jumped after European Central Bank chief Mario Draghi sounded a more 'dovish' than expected note at Thursday's press conference following the Governing Council's decision.

As expected, the ECB kept all its main policy rates unchanged, with that on the main refinancing facility steady at 0.0%, as well as its guidance for its asset purchase programme.

Yet Draghi pushed back by more than was expected against recent speculation that a shift in its QE-guidance was imminent.

"We are not there yet," Draghi told the assembled journalists.

On the other hand, he did say the current policy stance would be discussed in the fall (not before or in September as some believed would be the case)- but not much more.

Not lost on FX traders, when queried by a journalist regarding recent strength in the euro, Draghi said financing conditions in the currency bloc were still "favourable". That saw the single currency leap higher and hit a two-year high.

Commenting on the ECB's decision, Michael Hewson, chief market analyst at CMC Markets UK said: "There was nothing in the overall narrative that came across as remotely hawkish, with the ECB President expressing concern about the prospects of a tightening of financial conditions, he went on to include references to weak core prices, and a commitment for QE to run until there is evidence of an inflation pick-up.

"Sadly for him the currency markets weren’t buying it and the euro, after initially dipping, roared back in the afternoon session, though it was probably helped by events in the US and a possible investigation into the President’s business dealings, which saw the US dollar slip back further."

For their part, analysts at Bank of America-Merrill Lynch pushed back their expected timetable for a one-off hike in the deposit rate - then at -0.40% - to spring 2019.

In the same research note, entitled 'Rendez-vous in the fall, whenever that is', BofA said "Delay in QE decision supportive for periphery & front-end. ECB has set the light Green for summer carry trades."