UPDATE 1-Euro zone bond yields edge back up, inflation expectations rise
* Euro zone periphery govt bond yields tmsnrt.rs/2ii2Bqr (Updates price action, adds move in inflation expectations)
LONDON, May 10 (Reuters) – Most euro zone bond yields edged up on Monday as investors returned their focus to a brighter economic outlook and its implications for central bank policy following large swings following Friday’s U.S. non-farm payrolls data.
Rising crude oil prices after a major cyberattack forced the shutdown of critical fuel supply pipelines in the United States meanwhile fuelled euro zone inflation expectations.
A key market gauge of long-term inflation expectations in the bloc rose to around 1.56% — its highest in almost four weeks.
Germany’s 10-year Bund yield touched its highest level in almost a week, while Italian borrowing costs held near their highest levels since September.
“There is a very broad consensus out there for higher Bund yields, and we agree,” said ING senior rates strategist Antoine Bouvet.
“There is a visible nervousness in peripheral debt at the prospect of ECB slowing purchases down. We’re surprised the market hasn’t come to terms with it yet,” he added.
While the European Central Bank (ECB) has stepped up the pace of buying within its PEPP emergency stimulus scheme, signs that the recovery is taking hold have led some officials to talk about slowing purchases in the months ahead.
Investor morale in the euro zone rose in May to its highest level since March 2018, a survey showed on Monday, suggesting the bloc is overcoming the COVID-19 crisis.
ECB policymaker Martin Kazaks said on Friday the central bank could decide to reduce the pace of its emergency bond purchases in June if borrowing costs remain low.
In a sign of division among policymakers, ECB Chief Economist Philip Lane told a French newspaper that the ECB could still increase bond purchases in June if such a move is needed to keep borrowing conditions favourable.
Latest ECB bond-buying data will be published later in the day.
Most 10-year bond yields in the currency bloc were around 1 basis point higher on the day.
Germany’s 10-year Bund yield briefly rose to -0.19% , its highest in almost a week, before pulling back to around -0.21%, still up slightly on the day.
Italy’s 10-year bond yield was a touch lower at 0.92% — holding near its highest level since last September.
Data on Friday showing the U.S. economy added just 266,000 jobs in April, a fraction of nearly a million expected, triggered big but short-lived swings in U.S. and euro zone government bonds.
Analysts said markets now appeared to be looking past those numbers and to Wednesday’s U.S. inflation data for the next clues on the U.S. economic outlook.
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