Eurozone bond yields hovered around all-time lows and the euro rallied on Thursday after the European Central Bank held interest rates steady and announced further asset purchases.

The euro climbed 0.5 per cent to $1.2143, close to its high of the year, after the ECB said it would expand its €1.35tn emergency bond-buying programme by another €500bn and extend it to March 2022, broadly in line with consensus expectations. The bank also kept its deposit rate unchanged at minus 0.5 per cent.Italian, Spanish and Portuguese 10-year yields had fallen to their lowest levels on record ahead of the central bank’s meeting, but rose modestly after Christine Lagarde, the ECB chief, said the full bond-buying facility did not have to be used.

The ECB “broadly delivered what was very close to market expectations, which is which is why you’re not seeing much more than an initial knee-jerk reaction”, said Francesca Fornasari, head of currency solutions at Insight Investment.

Ms Lagarde said on Thursday that not all of the increased sum available under the bond-buying programme needed to be used “if favourable financing conditions can be maintained”. The amount could be “recalibrated” if necessary, she added.

Line chart of 10-year government yields (%) showing Eurozone bond yields near record lows

Eurozone yields were unlikely to rise much from here given the ECB is in effect promising investors it will do as much, or as little, bond buying as is necessary to hold down borrowing costs, said Lyn Graham-Taylor, strategist at Rabobank.

“This has most of the characteristics of yield curve control,” he said. “There’s no set amount of monthly purchases, just a promise to keep financing costs down. The only thing that’s missing is a formal target.”

The ECB’s purchases have helped to ignite a record-breaking rally in eurozone debt. Spain issued fresh 10-year debt at a negative yield for the first time on Thursday, with an auction of €920m of bonds maturing in October 2030 priced at a yield of minus 0.03 per cent.

It joins a club of eurozone nations being effectively paid by investors to borrow over a decade. Portugal’s 10-year yield turned negative two weeks ago.

On Wall Street the large-cap S&P 500 slipped 0.1 per cent after new data showed a sharp rise in first-time jobless claims last week. The tech-heavy Nasdaq Composite, meanwhile, closed higher by 0.5 per cent.

Initial applications for US unemployment benefits accelerated to 853,000 last week, up from 716,000 the previous week, after a fresh surge in coronavirus cases spurred a new round of shutdowns that has stymied the labour market’s recovery.

Optimism surrounding the rollout of Covid-19 vaccines also helped to lift oil prices. Brent crude, the international benchmark, climbed 4.1 per cent to $50.87 a barrel at one point, its highest level since early March.

The pound extended its falls against the euro, sliding 1.3 per cent to €1.0953 as the deadline for a UK-EU trade deal approached with no agreement secured.

London’s FTSE 100 closed up 0.5 per cent, the region-wide Stoxx Europe 600 index fell 0.4 per cent and Frankfurt’s Xetra Dax slipped 0.3 per cent.