Irish two-year notes advanced, pushing the yield below zero for the first time, as investors awaited growth data that economists said will show the euro area will need more support from the European Central Bank.

Italian and Irish 10-year bond yields dropped to record lows after the ECB yesterday cut its key interest rate and signalled at least €700 billion of aid to support the flagging euro zone economy.

Ireland’s two-year yield fell two basis points, or 0.02 percentage points, to 0.004 per cent at 8:40am after dropping to as low as minus 0.004 per cent, the least since Bloomberg began collecting the data in 2003. The 4.6 per cent note due in April 2016 rose 0.015, or 15 cents per €1,000 face amount, to 107.365.

A negative yield means investors buying the securities will get less back than they paid when the debt matures.

The decline in yield comes as new figures show that inflation pressures in the euro zone have risen to a 28-month high.

The Eurozone Future Inflation Gauge (EZFIG), published by the Economic Cycle Research Institute on Friday, rose to 97.4 in July from 96.6 in June.

"With the EZFIG climbing further in its latest reading, euro zone inflation may bottom out in the months ahead," said Lakshman Achuthan, the ECRI's chief operating officer.

European Central Bank President Mario Draghi announced a stimulus programme yesterday to buy asset-backed securities and covered bonds in the latest attempt to revive the flagging euro zone economy and boost inflation. Annual inflation fell to just 0.3 per cent in August according to a flash estimate, well below the ECB's target of just under 2 per cent and what it terms the "danger zone" of 1 per cent.

Bloomberg/Reuters