Euro-area government bonds surged, led by Italian and Spanishsecurities, after the European Central Bank (ECB) unexpectedly cutits benchmark interest rate to a record low, boosting demand forfixed-income assets.

Italy's two-year yield fell to the lowest level in more thanfive months, while the rate on Germany's two-year notes dropped tothe least since May. The ECB reduced the main refinancing rate by25 basis points to 0.25 percent. The decision was forecast by threeout of 70 economists in Bloomberg News survey, with the remainderpredicting no change. ECB President Mario Draghi, speaking toreporters in Frankfurt, said weaker growth is a downside risk toinflation.

“The euro region is likely to get stuck in a low-growth,low-inflation environment for a while,” said Harvinder Sian, afixed-income strategist at Royal Bank of Scotland Group Plc inLondon. “For the ECB's easing bias to have any meaningfulcredibility at all, it has to act. And it did.”