(Repeats to fix technical glitch)
By Abhinav Ramnarayan and Helen Reid
LONDON, March 29 The euro, the bloc's government
bond yields and banking stocks fell on Wednesday after sources
told Reuters that European Central Bank policymakers are wary of
making any new change to their policy message in April.
Small tweaks at the ECB's meeting earlier this month raised
the spectre of a surge in borrowing costs for the bloc's
indebted periphery and policymakers are keen to reassure
investors that their easy-money policy is far from ending.
"The market was getting ahead of itself by pricing in rate
hikes in 2017 and this story has confirmed that view," said
Mizuho strategist Antoine Bouvet. "If we're talking about
potential hikes it's only in 2018 at the earliest that we can
Indeed, money markets now no longer fully price in an ECB
rate rise next March, while expectations for rate increase in
December were scaled back after the ECB report.
The euro sank to a week's low against the dollar on the
report, down 0.7 percent to $1.0743. It also hit its
lowest in a month at 119.05 yen.
Europe's government bond yields fell broadly, with benchmark
German 10-year yields at a three-week low of 0.34 percent, down
4 basis points on the day.
Euro zone banking stocks hit a session low and were
last down 0.6 percent. They underperformed the broader euro zone
stock market, which was up 0.1 percent.
"If rate expectations move down, banks' net interest income
gets pushed down. If you've got lower for longer rates then it's
much tougher for banks to make money. People are trading
accordingly," said a banking analyst who preferred to remain
Euro zone government bond yields have been rising steadily
since October on expectations that increased growth and
inflation will lead to a change in the ECB's ultra-loose
monetary policy stance.
Earlier this month, the ECB said there was no longer a sense
of urgency to prop up the euro zone economy, while some
officials had raised the prospect of a rate rise before
quantitative easing ends.
Peripheral bonds, seen as the most vulnerable to any ECB
tightening, also rallied.
Portugal's 10-year government bond yield fell to 3.69
percent, its lowest level since early January.
(Additional reporting by John Geddie and Dhara Ranasinghe;
Editing by Ken Ferris)