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ECB Cuts Key Interest Rates

European bonds surge after unexpected rate cut by the European Central Bank.

By Neal Armstrong and Anchalee Worrachate, Bloomberg | Updated on November 07, 2013

Euro-area government bonds surged, led by Italian and Spanish securities, after the European Central Bank (ECB) unexpectedly cut its benchmark interest rate to a record low, boosting demand for fixed-income assets.

Italy’s two-year yield fell to the lowest level in more than five months, while the rate on Germany’s two-year notes dropped to the least since May. The ECB reduced the main refinancing rate by 25 basis points to 0.25 percent. The decision was forecast by three out of 70 economists in Bloomberg News survey, with the remainder predicting no change. ECB President Mario Draghi, speaking to reporters in Frankfurt, said weaker growth is a downside risk to inflation.

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