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UPDATE 1-Euro zone bond yields, euro jump on report of ECB plan for QE tapering
October 4, 2016 / 4:40 PM / 10 months ago

UPDATE 1-Euro zone bond yields, euro jump on report of ECB plan for QE tapering

(Adds comment, prices)

By Dhara Ranasinghe

LONDON, Oct 4 (Reuters) - Euro zone bond yields soared across the region and the euro rose late on Tuesday after media reports of an ECB plan for tapering its asset-purchase programme.

The European Central Bank will probably slowly wind down bond purchases before it ends quantitative easing and could do so in steps of 10 billion euros ($11.2 billion) a month, Bloomberg cited euro zone central bank officials as saying.

According to the report, the sources did not exclude that the programme could still be extended at the full monthly pace of 80 billion euros. The report did not give a date for when any tapering could begin.

"The 10 billion euro sum is the element of the report the market reacted to, with the conclusion that less demand for bonds from the ECB is negative for the market," said Richard McGuire, head of rates strategy at Rabobank.

"But the article also suggests that QE could continue and that all options are on the table so it looks like we are getting a knee-jerk reaction."

Italian and Spanish bond yields each jumped 8-9 basis points to two-week highs before pulling back.

Italy's 10-year bond yield was last up 7 bps on the day at 1.30 percent, while Spanish yields were up by a similar amount at 1.05 percent.

Benchmark German 10-year Bund yields briefly rose as much as 5 bps to minus 0.042 percent, their highest level in about 1 1/2 weeks.

The ECB's 1.7 trillion euro bond-buying scheme has underpinned demand for bonds across the region. The bank has been widely expected to extend the programme later this year, given a still tepid outlook for inflation and economic growth.

German 30-year bond yields were up 6 bps on the day at 0.54 percent, while the euro rallied on the report.

The euro rose past 88 pence for the first time since early 2-013 on the report. (Reporting by Dhara Ranasinghe, John Geddie and Anirban Nag, editing by Nigel Stephenson and Susan Fenton)

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