LONDON: German 10-year bond yields were set for their biggest weekly drop in seven weeks on Friday, while Italian yields were headed for a seventh straight week of declines, as expectations for central bank easing bolstered eurozone bond markets.

After selling off last week, bonds resumed their rally this week, pushing prices up and yields down.

“Last week, we did see a big sell-off and when we entered this week it was a buying opportunity because central banks are expected to ease policy,” said Pooja Kumra, European rates strategist at TD Securities in London. “And adding to that we’ve had further signals that we will get easing soon.” Two Federal Reserve officials on Thursday sharpened their public case for acting, quickly if needed, to support the U.S. economy, reviving bets the central bank may deliver a double-barrelled interest rate cut this month.

A report on Thursday that European Central Bank staff were studying a potential change of the bank’s inflation goal, now close to but less than 2 per cent, added to expectations for easing in the bloc soon.

Most 10-year bond yields in the euro area were down 1 to 2 basis points on the day. Italian yields rose after falling the previous session.

Germany’s 10-year bond yield fell 1.5 bps to minus 0.32pc . It is down almost eight bps this week and set for its biggest weekly fall since the end of May.

Analysts said while ECB officials including President Mario Draghi have debated the adoption of a symmetric inflation target, Thursday’s report was timely.

“At the very least, it would reduce the risk that the ECB withdraws stimulus too quickly when inflation shows signs of returning to target,” analysts at ING said in a note. “The implication, therefore, is bullish for euro rates.” A key gauge of long-term eurozone inflation expectations, the five-year, five-year forward, rose to 1.32pc on Friday, its highest in almost two months.

Published in Dawn, July 20th, 2019