* Euro zone periphery govt bond yields tmsnrt.rs\/2ii2Bqr (Adds analyst comment, background)<\/p>\n
MILAN, Sept 15 (Reuters) – German bond yields edged lower on Wednesday, tracking a move in U.S. Treasuries after falling the day before on weaker-than-expected U.S. inflation data.<\/p>\n
CPI numbers suggested the Federal Reserve might be more dovish at next week\u2019s policy meeting. The U.S. central bank was getting ready to reduce its bond-buying programme while deciding how soon to lift interest rates from near zero.<\/p>\n
U.S. borrowing costs fell in London trade, with the 10-year Treasury yield down 0.5 basis points at 1.27%, after falling more than 6 bps on Tuesday as data showed consumer prices increased at their slowest pace in 6 months.<\/p>\n
\u201cAt present, this slight deceleration in consumer prices, combined with the subdued improvement in the U.S. labour market and participation rate, supports the Fed\u2019s prevailing patient stance,\u201d Raymond James European Strategists said.<\/p>\n
Germany\u2019s 10-year government bond yield fell 0.5 basis points to -0.345%<\/p>\n
\u201cThe outperformance of U.S. Treasuries, which has taken 30y spreads over Bunds to the lowest level this year, underscores the U.S. impulses are more relevant for the market direction ahead of next week\u2019s FOMC meeting,\u201d Commerzbank analysts said.<\/p>\n
Meanwhile, euro zone break-evens cooled off a bit with a key market gauge of euro zone inflation expectations at 1.7282% , after hitting its highest level since mid-2015 at 1.8207% on Monday, in a sign that investor perceptions over the direction of future inflation are shifting.<\/p>\n
\u201cWith the subdued data tone unlikely to reverse quickly with supply chain constraints lingering while demand impulses are fading, we suggest trading the range just below -0.3% in 10y Bund yields,\u201d they added.<\/p>\n
Data showing that euro zone industrial production was stronger than expected in July did not trigger any price action on government bonds.<\/p>\n
\u201cWe see euro zone yields range-bound before the ECB\u2019s December policy meeting with the central bank dovish stance offsetting rising inflation expectations,\u201d Laur\u00e9line Renaud-Chatelain, fixed income strategist at Pictet Wealth Management, said. \u201cWe believe that just a big surprise in inflation data can change this scenario.\u201d<\/p>\n
\u201cBesides, we don\u2019t expect much price action on government bonds ahead of the German elections,\u201d she added.<\/p>\n
Germany\u2019s federal election is too close to call as the number of still undecided voters hit a record high.<\/p>\n
Some analysts forecast a more expansionary fiscal policy in Germany and Europe if, as expected, the Greens form part of the new government.<\/p>\n
The ECB\u2019s Pablo Hernandez de Cos reiterated the inflation increase in the euro zone is mainly temporary.<\/p>\n