LONDON (Reuters) - European government borrowing rates plummeted to record lows, the euro weakened and stock markets rallied on Thursday after the European Central Bank launched a landmark bond-buying program.
The stubbornly stagnant euro zone economy and falling consumer prices in the currency bloc prompted the ECB to unveil a 60 billion euro a month asset-purchase program to run from March 2015 until the end of September next year.
"In a nutshell, the ECB seems to have taken the bull by the horns," said Benoit Anne, head of global EM strategy at Societe Generale.
In response, the euro - seen as the main channel through which the program will help lift prices - fell more than 1 percent against the dollar EUR=, the yen EURJPY= and the Swiss franc EURCHF=.
It hit an 11-year low of $1.1404 after ECB President Mario Draghi revealed details of the scheme in a news conference. Some analysts say parity with the dollar is possible.
"He took out the bazooka ... It is a big and credible program," said David Keeble, global head of interest rates at Credit Agricole in New York.
Yields on bonds which will be bought under the program fell. Spanish ES10YT=TWEB and Italian 10-year bond yields IT10YT=TWEB fell by more than 10 basis points to new record lows of 1.402 percent and 1.557 percent respectively.
German 10-year Bund yields DE10YT=TWEB, which set the standard for euro zone borrowing costs, hit a new low of 0.377 percent, down from 0.53 percent before Draghi spoke.
"Investors are going to be forced to higher-yielding assets," said Wilmer Stith, fixed income portfolio manager at Wilmington Trust in Baltimore, Maryland. "That's what the ECB wants to happen. They want to enlist more risk-taking in the economy."
The FTSEurofirst 300 .FTEU3 index of top European shares hit a seven-year high, while Germany's DAX .GDAXI hit a record high, before paring gains. Spain's IBEX .IBEX and Italy's MIB index .FTMIB were up 1.8-2.4 percent.
Draghi said the quantitative easing program would include purchases of bonds with maturities of up to 30 years. Italian 30-year yields IT30YT=TWEB fell below 3 percent for the first time, while France's dropped below 1.5 percent.
"The ECB delivered more than I was expecting, in terms of size especially...It is a pretty powerful package, it is serious medicine," said Andrew Bosomworth, a senior portfolio manager at Pimco, the world's largest bond investor.
"I would look favorably towards the longer end of the periphery yield curves where there is still substantially higher interest rates, and ... at other asset classes that have benefited from QE in the U.S. and UK, namely stocks."
In a sign of what investors believe the impact of QE will be on the real economy, market-implied inflation expectations rose sharply. However, they still suggested price growth would remain below the ECB's target in the coming decade. The euro five-year, five-year breakeven forward, which shows where investors expect 2025 inflation forecasts to be in 2020, rose 8 bps to 1.74 percent.
"My sense is the announcement is going to do more to depress the value of the euro than directly raise inflation expectations," said Jack Ablin, chief investment officer at BMO Private Bank in Chicago.
The ECB will mainly buy investment-grade debt, but junk-rated bonds issued by countries that are in an international assistance scheme will also be included.
This increases the pressure on Greece to stick to its European Union/International Monetary Fund bailout deal after this weekend's snap elections. The vote looks likely to be won by the far-left Syriza party, which promises an end to austerity and a renegotiation of Athens's debt to official lenders.
Greek 10-year yields GR10YT=TWEB were down 13 basis points at 9.38 percent. Greek Prime Minister Antonis Samaras hailed the QE launch and warned his country must complete the stalled bailout review to take advantage from it.
"Maybe the most amazing thing about today's historic event is that by Monday morning it will not be the major talking point .... By then we will have moved on to the Greek elections and what they might mean for the euro zone," said Gary Jenkins, chief credit strategist at LNG Capital.
Hours after the ECB decision, Denmark, whose crown currency is pegged to the euro, cut interest rates for the second time this week, taking the deposit rate to -0.35 percent from -0.2 percent.
The crown weakened to 7.4457 per euro EURDKK=D4 after the rate cut but later recovered to 7.4420, having fallen to 7.4540 crowns per euro earlier in the day because of intervention by the Danish central bank.
Currencies and stocks in the European Union's emerging markets, which have very close trade links to the euro zone, firmed.
Reporting by the London markets team and Richard Leong in New York, writing by Marius Zaharia, editing by Nigel Stephenson/Jeremy Gaunt