October 24, 2019 / 9:38 AM / 19 days ago

UPDATE 2-Euro zone bond yields slightly down after ECB keeps rates unchanged

* ECB leaves door open for more stimulus

* Mario Draghi says farewell after 8 years as ECB president

* Euro zone flash PMIs mostly disappoint (Recasts, updates prices and quotes)

By Yoruk Bahceli and Olga Cotaga

LONDON, Oct 24 (Reuters) - Euro zone bond yields traded marginally lower after the European Central Bank kept interest rates unchanged on Thursday, with President Mario Draghi saying in his last press conference that negative interest rates have been a “very positive experience.”

“Negative rates have stimulated the economy, have affected positively employment. And so all in all, we are exactly in the direction we wanted them to be,” Draghi said.

At its monetary policy meeting, the central bank left the deposit facility unchanged at -0.50% and reiterated that the asset purchase programme would resume on Nov. 1 at a monthly pace of 20 billion euros, which was decided in September.

“Mario Draghi signed off today reiterating that he and the ECB have done if not whatever it took, but whatever it could, to get the euro area economy back on its feet,” said Gareth Isaac, chief investment officer for EMEA at Invesco Fixed Income.

“Despite assurances that there was further room for easing, realistically speaking monetary policy has reached its limits and he stated again that the baton must now move on to fiscal action, in those countries that have room to ease,” Isaas said.

German 10-year government bond yields were essentially flat at -0.40%, with Italian 10-year yields down 3.4 bps at 1% and French 10-year yields down 1.2% bps at -0.105%.

Draghi’s last day as ECB president is Oct. 31. He will be replaced by Christine Lagarde, former chairwoman of the International Monetary Fund.

“Lagarde need both to try and quell dissent within the ECB over the September easing move and encourage governments to loosen fiscal policy, rather than rely on monetary policy, which is increasingly ineffectual, to do all the work stimulating growth,” said Rupert Thompson, head of research at Kingswood.

Money markets are now pricing in a 15% chance of a rate cut in December versus a zero chance before the ECB meeting.

Prior to the ECB announcement, euro zone bond yields were trading up after disappointing business activity data that put the region’s economic performance in the spotlight.

The data, which came in mostly below Reuters poll forecasts, set a bleak tone ahead of Draghi’s last policy meeting in charge.

Euro zone business activity barely expanded in October as demand shrank, the flash PMI data showed.

The figures fuelled concerns that a contraction in manufacturing is seeping into services, as the services PMI fell to a 37-month low.

There was some optimism, however, as French business activity picked up more than anticipated.

Market attention has shifted away from Brexit, as EU member states on Wednesday delayed a decision on whether to grant Britain a three-month extension on its date for leaving the European Union.

British Prime Minister Boris Johnson said that if the deadline was deferred to the end of January, he would call an election to be held by Christmas. (Reporting by Yoruk Bahceli; Editing by Shri Navaratnam and Mark Heinrich)

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