* Bonds recover after Friday's sharp selloff
* Markets rattled by news that ECB discussed higher rates
* Seek clarification from ECB chief Draghi, who speaks later
* Euro zone periphery govt bond yields tmsnrt.rs/2ii2Bqr
(Adds Spain quote, updates prices)
By Dhara Ranasinghe
LONDON, March 13 Euro zone government bond
yields edged off multi-week highs on Monday as European Central
Bank chief Mario Draghi remained tight-lipped on policy details
after he signalled last week that the urgency for further action
News on Friday that some ECB policymakers had discussed the
possibility of lifting interest rates before ending quantitative
easing triggered a sharp sell-off in bonds and a jump in the
Monday began with a calmer tone, with investors reluctant to
dump safe-haven debt ahead of Wednesday's closely-watched
election in the Netherlands and as Scottish First Minister
Nicola Sturgeon said she would seek authority to call a new
referendum on independence.
Investors were looking for more clues from a scheduled
speech by Draghi in Frankfurt on Monday, but he did not provide
any hints on the future direction of monetary policy.
Friday's source-based report said an ECB discussion about
lifting rates was brief and that there was no broad support for
The ECB on Thursday highlighted an improving economic
outlook, fuelling speculation that the central bank could start
to unwind its monetary stimulus later this year.
"The shift at the ECB is in line with stronger economic
fundamentals, but I think we will have to wait until June to see
a formal change in the ECB's forward guidance," said Cyril
Regnat, fixed income strategist at Natixis.
ECB policymaker Jan Smets was reported by the Wall Street
Journal on Monday as saying that last week's rate meeting was
not a signal of a coming policy change but a reflection of a
Germany's 10-year government bond yield was down 2 basis
points at 0.47 percent, pulling back from
five-week highs just shy of 0.50 percent.
Across the euro zone, most yields were 1-5 bps lower.
Analysts said the hefty sell-off on Friday was tempting some
investors back into the market.
Spain was an exception: the country's 10-year borrowing
costs rose 3 bps to 1.90 percent, the highest since the day
after the Brexit vote in June 2016, after the Scottish
referendum news put the focus on Catalonia.
Investors now expect the ECB to raise interest rates by
March 2018 and see inflation rising higher.
A market gauge of long-term euro zone inflation, the
five-year, five-year breakeven forward rate, almost touched 1.74
percent on Monday -- its highest in more than two
weeks. Investors expect the ECB to raise rates by March 2018,
according to money market futures.
For Reuters 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
(Editing by Catherine Evans)