| LONDON, Sept 19
LONDON, Sept 19 Germany's benchmark 10-year bond
yield held just above zero percent on Monday as the market's
focus was firmly fixed on central bank meetings in Washington
and Tokyo this week.
The Federal Reserve, which meets on Wednesday, could give a
clear signal of an interest rate rise to come even if it follows
market expectations for a pause this month.
Data on Friday showing U.S. consumer prices rose more than
expected in August raised the odds that the Fed will raise rates
later this year, pushing U.S. Treasury yields higher.
A two-day meeting of the Bank of Japan (BOJ), which
concludes on Wednesday, also has the potential to shake up
global bond markets.
The BOJ could shift negative interest rates to the primary
focus of its monetary policy, heightening market disquiet over
what any move away from quantitative easing reveals about the
waning firepower of global central banks.
With three years of massive money printing failing to push
up inflation, the BOJ is expected to move away from shock
therapy and towards a protracted battle against deflation, say
sources familiar with its thinking.
Analysts said what the BOJ says and does could have
ramifications for euro zone bond markets since the European
Central Bank is in the midst of its own QE programme and there
are concerns its policy options are also narrowing.
"QE has always been a tool to push down bond yields and now
the BOJ is suggesting it could move away from this," said David
Schnautz, an interest rate strategist at Commerzbank.
"This has made markets in Europe wary because what the BOJ
does could be relevant to the ECB."
The 10-year German Bund yield was marginally higher at 0.005
percent, having briefly dipped into negative
territory on Friday.
Disappointment with a lack of action at an ECB meeting
earlier this month has put upward pressure on euro zone bond
yields and fuelled a perception that major central banks are
running out of tools to boost growth and inflation.
Other euro zone bond yields were flat to a touch higher,
with the exception of Portugal where bond 10-year yields pulled
back from more than two-month highs hit on Friday.
News that German Chancellor Angela Merkel's CDU party
suffered a rout in a Berlin state vote at the weekend had little
immediate market impact.
Still, analysts said they were watching for fallout from the
results since they could have implications for Germany's
negotiating stance with Britain, which voted to leave the
European Union in June.
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 Dhara Ranasinghe; editing by John Stonestreet)