* Bond yields hold near multi-week highs<\/p>\n
* Euro Zone 5y5y break even inflation at 3-yr high<\/p>\n
* All eyes on ECB meeting this Thursday (Updates with move in euro zone inflation expectations)<\/p>\n
LONDON, Sept 6 (Reuters) – Euro zone sovereign bond yields were stuck at seven-week highs on Monday amid rising expectations of inflation as markets remained on edge over a possible slowdown in the pace of European Central Bank bond buying in the months ahead.<\/p>\n
A raft of hawkish comments and strong inflation data last week have put markets on alert that the ECB, which meets on Thursday, could be looking to dial back its massive emergency stimulus.<\/p>\n
Friday\u2019s U.S. jobs data added to the selling pressure in bonds after revealing a sharp increase in wages and a fall in the unemployment rate, although the number of new jobs created in August was less than anticipated.<\/p>\n
However, trading conditions were thin with U.S. markets closed on Monday for a holiday.<\/p>\n
Germany\u2019s benchmark 10-year Bund yield rose one basis point to -0.347%, matching Friday\u2019s seven-week high. Its 30-year Bund yield was at around 0.15%, also near highs hit on Friday.<\/p>\n
ECB chief economist Philip Lane has said it is too early for the ECB to lay out plans to wind down the 1.85 trillion euro ($2.2 trillion) Pandemic Emergency Purchase Programme (PEPP).<\/p>\n
But the ECB is expected on Thursday to set the pace of PEPP buying for the fourth quarter, a decision that could take on greater significance given the taper talk.<\/p>\n
\u201cIf the only decision we expect the ECB to take is on the pace of the next quarter\u2019s worth of PEPP purchases, a spike in inflation and recent hawkish comments have raised the stakes,\u201d said ING senior rates strategist Antoine Bouvet.<\/p>\n
He added that this now put the focus on the ECB\u2019s latest economic forecasts, due out on Thursday.<\/p>\n
In thin trade, angst about rising inflation globally and the direction of ECB policy continued to play out in bond markets.<\/p>\n
France\u2019s 10-year bond yield rose to 0.001%, briefly moving back into positive yield territory for the first time since mid-July.<\/p>\n
Greece\u2019s five-year bond yield rose to its highest in just over two months at 0.056%, last up 4 bps on the day.<\/p>\n
A key gauge of the market\u2019s long-term euro zone inflation expectations rose to a three-year high above 1.72% and German 10-year break-even inflation rose to around 1.47% – the highest since late 2018 .<\/p>\n
Bouvet said greater demand for inflation protection was probably continuing given the news of rising U.S. wages and strong euro zone inflation data last week.<\/p>\n
German industrial orders unexpectedly surged in July, data showed on Monday, hitting a post-reunification high and pointing to a solid start to the second half for Europe\u2019s largest economy.<\/p>\n
\u201cThe ECB will have to articulate a more constructive economic outlook without giving the impression that a tighter policy stance is on its way, especially as the new strategy was just translated into a new, more dovish guidance,\u201d Pictet Wealth Management strategist Frederik Ducrozet said in a note.<\/p>\n