LONDON Jan 4 Euro zone bond yields fell in
early trade on Wednesday with the market taking a nuanced view
on inflation ahead of euro zone consumer prices data due out
later in the session.
A surprisingly high inflation print from Germany pushed
yields sharply higher on Tuesday as the country's Ifo economic
institute called on the European Central Bank to end its bond
buying if the data was replicated across the euro zone.
Inflation numbers for the single currency bloc are due out
at 1000 GMT, and while expectations are that they will
overshoot, analysts believe the increase region-wide will be
less dramatic than in Germany.
A Reuters poll predicted a 1 percent year-on-year rise in
December compared to 0.6 percent the previous month. German
prices, harmonised to compare with other European countries,
rose 1.7 percent compared to expectations of 1.3 percent.
"Euro zone inflation will probably be biased towards a
higher rate, but it won't be bursting the market," said DZ Bank
analyst Rene Albrecht. "In any case, much of the increase in
headline inflation is related to the oil prices. We don't expect
the core inflation rate to pick up as much."
Oil prices have risen steadily over the past year. Brent
crude was at $56.11 per barrel at 0845 GMT on Thursday, compared
with $37.18 a year ago.
ING strategists suggested the high German inflation print
was merely the trigger for a much needed correction given that
German government bond yields dropped as much as 17 bps in the
second half of December.
"Important will be the core (euro zone) figure and whether
it will also nudge higher from the 0.8 percent level where it
has been for four straight months," the strategists said in a
Most euro zone bond yields fell 1-3 basis points in early
trades. Germany's 10-year bond, the region's benchmark, saw its
yield drop 2 bps to 0.26 percent by 0815 GMT.
A key measure of long-term euro zone inflation expectations,
the five-year five-year forward rate, rose further on Wednesday
to 1.77 percent, its highest level in over a year.
The European Central Bank targets core inflation of just
below 2 percent for the single currency bloc.
Euro zone government bond yields are also expected to be
affected by upcoming bond issuance, as January is traditionally
a busy month for government borrowers.
On Tuesday the yield on Ireland's 10-year bond rose 11 bps
to 0.89 percent ahead of a planned sale of 20-year
bonds via syndication on Wednesday.
Rumours of a new syndicated sale of bonds by Portugal pushed
that country's 10-year bond yield up 20 bps on Tuesday. The
yield shed 5 bps of that gain to 3.89 percent by
0835 GMT on Wednesday.
For Reuters new Live Markets blog on European and UK stock
markets see reuters://realtime/verb=Open/url=http://emea1.apps.cp.extranet.thomsonreuters.biz/cms/?pageId=livemarkets
(Reporting by Abhinav Ramnarayan; editing by John Stonestreet)