* German Bund yield tumbled to -0.09 pct
* ECB's Draghi says rate hike timing can be delayed further
* Talk about tiered rates for banks grows, bank stocks rally
* Money markets slash ECB rate hike bets
* Inflation expectations fall
* Euro zone periphery govt bond yields (Updates prices)By Dhara Ranasinghe and Virginia FurnessLONDON, March 27 (Reuters) - Germany's long-dated borrowingcosts were on track for their biggest one-day fall since January2, hitting 2-1/2-year lows below zero percent on Wednesday afterthe European Central Bank said it could further delay a raterise if needed and look at measures to offset the impact ofnegative interest rates.Bund yields were lifted briefly after Reuters reported thatthe ECB is looking at ways to cut the charges banks pay on theirexcess cash to offset the side-effects of sub-zero rates, butthe move south gathered momentum once the United States came in,and as investors began to focus on the implication that depositrate tiering may mean lower rates for longer. The central bank is studying options, including a so-calledtiered deposit rate, two sources told Reuters, which wouldalleviate pressure on banks from negative interest rates.
Euro zone banking stocks were last up 2.4 percent ."We have quite remarkable moves in fixed income and it maybe that on both sides of Atlantic expectations of easier policyis driving yields lower," said Richard Maguire, head of ratesstrategy at Rabobank.
Germany's 10-year bond yield was last down over seven basispoints on the day to a low of -0.094 percent, just 12 bps awayfrom the record lows hit in 2016. U.S. 10-year bond yieldsmeanwhile were down almost five basis points on the day to 2.36percent .
The expectation of more accommodative monetary policyworldwide prompted a strong rally in euro zone government bonds,putting French and Dutch government bond yields on track fortheir best month since January 2016.
Earlier in the day, comments from ECB chief Mario Draghi hadalso boosted talk that the ECB may be considering steps such asa tiering of interest rates to ease pressure on banks.Addressing complaints from banks that negative rates arehurting bank lending, Draghi said the ECB would look at whethermitigating measures are needed but said that negative weakprofits are not an automatic result of low rates.
"Certainly this headline has made an impact (on bankstocks). There is this story of tiering doing the rounds," saidGiuseppe Sersale, strategist at Anthilia Capital in Milan.
Following the ECB sources story, money markets sharply cutback their expectations for a rise in euro zone interest ratesnext year. Rabobank's Maguire said U.S. money markets are now pricingin at least one rate cut from the Federal Reserve this year.In a sign that investors are moving further up the curve insearch of some yield, 30-year German yields fell to 0.52 percent , also their lowest since late 2016.
French and Dutch 10-year bond yields hit 2-1/2-year lows, Spain's 30-year bond yield fell to aone-year low at 2.19 percent .Reflecting worries that the ECB will be unable to meet itsnear 2-percent inflation target, a key long-term gauge of eurozone inflation expectations fell to 1.33 percent -- down 6 bps on the day. <^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^Germany's 10-year Bund yield ^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^> (Reporting by Dhara Ranasinghe, Additional reporting by SujataRao, Danilo Masoni and Virginia Furness; editing by AngusMacSwan)
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