* ECB expected to focus on short-dated bonds in 2017
* German 30-year Bund yield rises 3 bps in early trades
* Spanish inflation shoots above expectations in December
* Italy steady after 6.75 billion euro bond sale Thursday
By Abhinav Ramnarayan
LONDON, Dec 30 Long-dated euro zone government
bonds sold off on Friday, the last day before changes to the
European Central Bank's bond-buying scheme kick in and the final
trading day of 2016.
The ECB announced changes earlier this month to the
parameters of the quantitative easing programme, or PSPP, that
suggested the focus of purchases would shift to the short end.
The changes included removing the deposit rate floor for
purchases and making the minimum maturity for eligible bonds one
year instead of two. Euro zone government bond curves are
expected to steepen as a result, and the market moved on those
expectations on Friday.
"It will take a few weeks to see how the ECB and the
national central banks adjust their purchases, but the way
inflation prospects evolve as well as the PSPP will be a
driver," said DZ Bank strategist Christian Lenk.
"The market is definitely prone for ongoing steepening, even
if it is sometimes overdone."
Spanish consumer prices harmonised for comparison with the
European Union rose 1.4 percent year-on-year in December as oil
prices jumped, flash data from the National Statistics Institute
showed on Friday.
"Spain is highlighted especially because growth has been
good but inflation has not been as strong so far. So this is a
noteworthy number," said Lenk.
Long-dated bonds are sensitive to inflation prospects.
The yield on Germany's 30-year government bond
rose 3 basis points to 0.90 percent, while the 30-year yields of
highly rated countries including the Netherlands, Austria and
France were up 2-3 bps.
Most euro zone bond yields rose as world stocks inched
higher and oil prices headed for their biggest yearly percentage
gain since 2009.
Germany's 10-year yield, the region's
benchmark, was up 1.4 bps to 0.19 percent, and most other euro
zone government benchmark bonds were up around 1 bps.
Italy's 10-year bond yield rose in line with
counterparts and was up 1 bps to 1.81 percent a day after the
sovereign raised 6.75 billion euros by selling four different
bonds on Thursday.
The country has been in the spotlight since Prime Minister
Matteo Renzi stepped down after a referendum loss in early
December and over a rescue plan for ailing lender Monte dei
On Friday, several newspapers reported that the bank, which
is being bailed out by the state, plans to issue 15 billion
euros ($15.8 billion) of debt next year to restore liquidity and
boost investor confidence.
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(Reporting by Abhinav Ramnarayan; Editing by Catherine Evans)