German 10-year bund yields set to remain close to zero for rest of this year, says Danske Bank

German 10-year bund yield is expected to remain close to zero for the rest of 2019; however, as some of the risks disappear and growth starts to improve, yields could move to the high end of the range, according to the latest research report from Danske Bank.

Investors in the European fixed income markets have welcomed the ECB announcement. The central bank has removed the risk of a rate hike in the foreseeable future, and in fact it may present the market with more small 'gifts' in coming quarters.

In the bond markets, this creates a clear incentive to hunt for extra return. Investors are focusing on carry trades. The obvious strategy is to buy high-yield Italian government bonds, as Italian banks are set to benefit from the new TLTROs, the report added.

However, investors have also pushed further out the yield curve in safe havens like Germany. Given the ECB's new easing bias and forward guidance, policy rates are set to remain negative for a very long time.

"So, while the ECB's downward revision of its growth and inflation forecasts may not have come as a major surprise, the ECB response was stronger than we had expected," Danske Bank further commented.