June 6 (Reuters) - The euro rebounded to the day’s highs on Thursday, Italian bank shares jumped while bond yields reversed their knee-jerk falls after the ECB released details of its cheap loans programme and amended its forward guidance on interest rates.
Yields briefly fell when the statement was released but then rose, with Germany’s 10-year government bond a touch higher on the day at -0.22% off an earlier low of -0.24%..
Italian 10-year bond yields likewise inched up to trade around 2.5%, having been around 2.46% earlier.
The euro zone banking stocks index rose to the day’s high, up 1.3%, while the euro rebounded as much as 0.4%, to the day’s high of $1.127
The ECB pushed back the timing of its first post-crisis interest rate hike and said it would continue paying banks to lend to households and businesses as the outlook for global growth darkens further.
It refrained from signalling bolder steps, such as cutting rates or restarting its massive bond purchases, maintaining a recovery in inflation towards its target of just under 2 percent had simply been delayed, not derailed.
Analysts said the TLTRO programme was less generous than hoped for.
“People believed it would be costless, but under the new scheme, banks that are not increasing their stock of loans would have to pay 10 bps over the MRO (main refinancing operation). It is not that much, but it’s creating incentives for banks to keep lending to the economy,” Natixis rates strategist Cyril Regnat said.
“Italian banks are the ones holding the biggest amount of TLTRO 2. But it will be harder to do carry trades with this TLTRO 3 because the cost is reducing the carry of short-dated BTPs.”
Italian banks rose 1.9% to the day’s highs after the statement, as investors scaled back expectations for an ECB rate cut in the wake of the ECB statement.
Reporting by London Markets Team, Writing by Sujata Rao; Editing by Dhara Ranasinghe