(Recasts, adds details, updates prices)<\/p>\n
Aug 30 (Reuters) – Euro zone bond yields held near one-month highs on Monday, showing little reaction as German inflation rose to a fresh 13-year peak.<\/p>\n
Preliminary data on Monday showed German inflation increased to 3.4% year-on-year and 0.1% month-on-month in August.<\/p>\n
\u201cThe lack of reaction is due to the fact that the bond market reads these figures as transitory,\u201d said Althea Spinozzi, fixed income strategist at Saxo Bank.<\/p>\n
The rise in German annual inflation was mainly driven by base effects such as a temporary reduction in value added tax last year, she added.<\/p>\n
\u201cMonthly figures are within expectations and moderate,\u201d Spinozzi added, noting that the monthly rise in prices was the lowest since November 2020, suggesting inflation may be cooling.<\/p>\n
Yields moved only marginally on both sides of the Atlantic.<\/p>\n
Markets were calm in the aftermath of U.S. Federal Reserve Chairman Jerome Powell\u2019s speech on Friday, which traders took to suggest a tapering of stimulus measures was unlikely until later in the year, sending U.S. Treasury yields falling.<\/p>\n
Earlier on Monday, Spanish inflation came in at 3.3% year-on-year, far above the 2.9% and 0.1% expected by a Reuters poll.<\/p>\n
Other data showed euro zone economic sentiment dipped from record highs in August, though selling price expectations in industry hit a record in August, heralding likely future inflationary pressures.<\/p>\n
Bond markets are closely focused on inflation readings this year. Though inflation in the euro area came in above the European Central Bank\u2019s 2% target in July and upcoming readings – starting with the 2.7% year-on-year figure expected for August on Tuesday – are likely to show it increase further, it is largely seen as transitory.<\/p>\n
By 1301 GMT, Germany\u2019s 10-year yield, the benchmark for the euro area, unchanged at -0.42%, just below last week\u2019s one-month high at -0.401%, after rising marginally earlier in the session.<\/p>\n
Italian 10-year yields were also unchanged, putting the closely watched gap with German 10-year yields at 105 bps.<\/p>\n
Earlier in the session, ECB policymaker and Bank of France governor Francois Villeroy de Galhau said the bank should take account of a recent improvement in financing conditions in discussing the future of its pandemic emergency bond purchases.<\/p>\n
Bond issuance picks up this week, with 29.5 billion euros ($34.8 billion) of issuance expected from the Netherlands, Italy, Germany, France and Spain – the highest since mid-July – according to Commerzbank analysts.<\/p>\n
But 48.3 billion euros of redemptions and coupon payments from Germany and Italy will keep net supply negative, they added.<\/p>\n