UPDATE 1-Euro and bond yields fall as ECB says to keep rates low through next summer


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    * ECB to end bond buys, keep rates low
    * Euro, bond yields fall
    * Rate outlook cheers bond investors
    * QE to be tapered, end by year-end

    By Dhara Ranasinghe and Tommy Wilkes
    LONDON, June 14 (Reuters) - The euro and bond yields tumbled
on Thursday after the European Central Bank said interest rates
would stay unchanged through the summer of 2019 and that it
would wrap up its stimulus programme at the end of this year.
    In its biggest step in dismantling crisis-era stimulus, the
ECB said monthly asset purchases would be reduced to 15 billion
euros until the end of December 2018 and then end. 
    But it also made clear the move would not mean rapid policy
tightening in the coming months, and that interest rates would
stay at record lows at least through the summer of 2019. 
    It was that investors seized on, pushing down the euro and
government bond yields, after initial gains. 
    "The hawks had been guiding for a June hike before the
meeting and given the clear guidance the ECB gave today on
interest rates, it had to be priced out," said Arne Petimezas,
an analyst at  AFS Group, an Amsterdam-based brokerage.
    The single currency  EUR=EBS  fell 0.4 percent on the day to
$1.1744, reversing moves it made immediately after the ECB
statement when it rallied as much as half a percent.
    Bond investors, meanwhile, drew comfort from the central
bank's outlook for interest rates.
    In Germany, the benchmark 10-year government bond yield was
down last down 3 basis points at 0.45 percent  DE10YT=RR ,
having given up earlier rises.
    Short-dated bond yields from Italy, the country seen as the
most vulnerable to higher borrowing costs, slipped 7 basis
points at 0.89 percent  IT2YT=RR , having been 9 bps higher
shortly before the ECB statement.
    Mizuho rates strategist Antoine Bouvet said the statement
had belied expectations the bank would only gradually
communicate to markets the upcoming tapering phases.
    "The surprise is the timing of the announcement - I think
investors expected a staggered announcement in the coming
months, so what we're seeing in the markets is a pricing out of
the uncertainty," Bouvet said.
    Money market pricing accordingly reflected a scaling back of
rate-hike bets over the next year.
    Investors now price just a 30 percent chance of a 10 basis
point rate hike by July 2019, compared with a roughly 80 percent
chance before the ECB announcement  ECBWATCH .
    Euro zone stocks  .STOXXE  turned positive on the day after
the ECB statement, with interest-rate sensitive sectors such as
autos  .SXAP  and utilities  .SX86P  hitting session highs.
    But bank stocks, which tend to gain from higher interest
rates, fell briefly before turning positive once again in
volatile trade.    

Markets react to the end of ECB stimulus    https://reut.rs/2JA5dy4
 (Reporting by Tommy Wilkes, Dhara Ranasinghe, Tom Finn and
Abhinav Ramnarayan; Helen Reid; Editing by Sujata Rao)
 ((saikat.chatterjee@thomsonreuters.com; +44-20-7542-1713;
Reuters Messaging: saikat.chatterjee.reuters.com@reuters.net))

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