* Euro zone periphery govt bond yields http://tmsnrt.rs/2ii2Bqr
By Yoruk Bahceli
AMSTERDAM, Sept 29 (Reuters) - Germany's 10-year bond yield
fell to its lowest in over a week before first-estimate
inflation readings for September on Tuesday, which will set
market tone just as policymakers appear divided on how to react
to cope with a second COVID wave.
Annual inflation in Germany's Saxony region held steady at
0.1%. Readings from several other states will follow, and the
national reading is due at 1200 GMT. It's expected to remain at
-0.1%. Euro zone-wide data will follow on Friday.
Inflation data come as European Central Bank policymakers
appear increasingly divided on whether fresh stimulus is needed
amid a fresh wave of coronavirus infections.
Hawkish policymakers argue the bank is downplaying good news
from economic indicators. Dovish policymakers are pushing ECB
President Christine Lagarde to adopt stronger language on the
risks to growth and the threat from euro appreciation.
"With governing council battle lines already drawn ahead of
the upcoming debate on whether to extend monetary easing, we
think economic data has a greater role in shaping rates markets
price action," ING analysts told clients.
Germany's 10-year yield was down about 1 basis point in
early trade at -0.542%, its lowest in over seven weeks.
A key market gauge of long-term inflation expectations in
the euro zone closed Monday at its lowest since July at 1.378%
, below the ECB's target of close to, but below 2%.
Business climate and consumer confidence data for the euro
zone are also due, at 0900 GMT.
There was also some focus on the ECB's weekly bond purchase
data released late on Monday, which showed buying under its
emergency pandemic purchase programme increase marginally to its
highest since late July.
"The data suggests that the hawks on the governing council
may not have succeeded in their aim to tacitly keep purchases
lower," Christoph Rieger, head of rates and credit research at
Commerzbank, told clients.
In the primary market, Italy will raise up to 8.25 billion
euros in an auction of five, 10-year and floating-rate bonds
[nL5N2GK29R}. Finland will raise up to 1 billion euros from a
bond due 2036.
(Reporting by Yoruk Bahceli, editing by Larry King)