* Yields down 5-7 bps after Fed meeting
* Fed leave rates steady, slows pace of future hikes
* Fears of central banks lack of ammunition fade
* ECB's Draghi to speak later in day
By Dhara Ranasinghe
LONDON, Sept 22 Euro zone bond yields hit
two-week lows on Thursday, with Germany's firmly back below zero
percent as Federal Reserve and Bank of Japan meetings this week
eased fears that central banks are running out of ammunition to
bolster growth and inflation.
The Fed on Wednesday left U.S. interest rates unchanged and
slowed the pace of future rate hikes it expects.
That followed an abrupt shift in monetary policy by the BOJ
to target interest rates on government bonds rather than just
"This whole discussion about central banks and their
willingness to act has faded away in the sense that it's clear
they will not throw in the towel," ABN AMRO senior fixed income
strategist Kim Liu said.
Bond markets around the world have come under pressure in
recent weeks from a perception that the potency of central bank
stimulus is ebbing, with the European Central Bank disappointing
some investors in early September with a lack of policy action.
But with this week's closely-anticipated meetings in the
U.S. and Japan now over, bond yields in the euro area headed
back towards levels seen when the ECB last met on September 8.
Germany's benchmark 10-year Bund yield fell more than 5
basis points to minus 0.05 percent - its lowest
level in almost two weeks.
That put Bund yields, which have flitted in and out of
negative territory this week, decisively below the zero percent
mark once more.
Other euro zone bond yields were down 5-7 bps, with yields
in most parts of the bloc tumbling to two-week lows.
While the Fed signalled it could raise rates by year-end as
the labour market improved further, it cut the number of rate
increases expected in 2017 and 2018. It also reduced its
longer-run interest rate forecast to 2.9 percent from 3 percent.
That has fuelled a perception that any tightening in U.S.
rates will be slow, with money markets pricing in a roughly 60
percent chance of a rate hike in December, according to CME
Group's FedWatch tool.
"It is very fashionable to say that central banks are
running out of ammunition. But the actions this week by central
banks, certainly by the BOJ, indicate that's not the case,"
Norman Villamin, chief investment officer at Union Bancaire
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ECB President Mario Draghi is due to speak later on
Thursday, with investors looking for clues on the outlook for
euro zone monetary policy.
"We will look out for digressions on the topic of monetary
policy to confirm whether the recent sound bites heard on
various newswires and from less senior ECB officials, stressing
the central bank is in wait and see mode, are also his views,"
Mizuho said in a note.
Greece was also in focus after the country's prime minister
said Greece could be included in the ECB's asset-purchase
programme within the next six months.
Two-year bond yields in Greece extended their falls to 6.02
percent, their lowest levels since late 2015.
(Additional reporting by Saikat Chatterjee in Hong Kong;
Editing by Jane Merriman)