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Euro zone bond yields dip, focus on bloc's inflation reading

Tue, 1st Sep 2020 08:33

* Euro zone periphery govt bond yields http://tmsnrt.rs/2ii2Bqr

By Yoruk Bahceli

AMSTERDAM, Sept 1 (Reuters) - Safe-haven German bond yields
continued to dip from their recent highs in early trade on
Tuesday, with the focus on the euro zone inflation reading for
August.

The data due out at 0900 GMT is expected to show inflation
decline to just 0.2%, although it could even dip into negative
territory, according to a Reuters poll. It follows Germany's
reading on Monday showing consumer prices falling for the first
time in more than four years, which evoked little market
reaction.

European inflation readings are in the spotlight this week
after the U.S. Federal Reserve announced last week that it would
start to target an average of 2% inflation over a period of time
rather than using the figure as a hard annual target. That has
steepened yield curves on both sides of the Atlantic.

"Investor focus on break-evens is likely to remain high in
light of the ongoing discussion on whether the recent Fed move
to average inflation targeting will put pressure on other
central banks to follow," UniCredit Analysts told clients.

"In this respect, note that break-even inflation in the
eurozone has risen comparatively less than it has in the US."

A key market gauge of long-term euro zone inflation
expectations is currently at around 1.24%, near the highest
since the start of the coronavirus crisis in Europe.
.

Germany's 10-year bond yield was down 1 basis point to
-0.41%, trailing down from its highest since early
June hit last week following the Fed's announcement.

In the primary market, Germany is scheduled to sell 600
million euros of inflation-linked bonds due 2026 and 2046 in an
auction, while analysts expect it could follow with an
announcement of the start of its debut green bond as early as
today.

Italian bond yields briefly rose to their highest in six
weeks at around 1.17% in early trade, but were last down 3 basis
points on the day to 1.13%.

Comments from European Central Bank bond member Isabel
Schnabel that it has no reason for now to add to its stimulus
measures had put pressure on Southern European bonds in the
previous session.

(Reporting by Yoruk Bahceli, Editing by William Maclean)

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