LONDON Oct 12 Euro zone bond yields edged
higher on Wednesday after concerns over a "hard Brexit" receded
on reports that Britain's parliament will play a larger role in
Sterling rose sharply on Tuesday and on Wednesday morning on
the back of news that British Prime Minister Theresa May has
offered to give British lawmakers some scrutiny of the process
to leave the European Union.
This led to a more optimistic tone in European markets which
has pushed yields higher, led by Germany's 10-year Bund
, which rose 1.2 basis points to 0.05 percent in
"It amounts to a reduction of the risk of a 'hard Brexit'
where the UK would leave the single market, so it is moving
prices today," said Antoine Bouvet, a rates strategist at
He warned, however, that the effect may not last.
"I don't think markets will get too carried away, because
while it sounds like the UK parliament will be involved in
discussions, it's still not clear to what extent this will
affect the process," he said.
Worries over central bank action has pushed bund yields
close to one-month highs in recent times, and that is likely to
come back into focus as the session wears on, analysts said.
Talk that the European Central Bank might reduce the scale
of its asset purchases before the programme finally ends has
unnerved investors in recent days and saw 10-year Bund yields
hit a high of 0.068 percent on Tuesday. This compares to the low
of minus 0.16 percent hit at the end of September.
Prospects of an ECB taper have risen up the agenda and some
analysts are now expecting the central bank to signal an easing
Rabobank analysts have updated their ECB monetary policy
expectations. They expect the central bank to extend the current
programme - set to end in March 2017 - by six months, but expect
tapering to begin in September 2017.
"It is too early for the ECB to pull the plug on its asset
purchases," Rabobank strategist Elwin de Groot said.
"However, we do also see increased concerns in the Council
about the need for a well-coordinated exit strategy ... we
believe that the ECB will aim to manage expectations of an exit
in the somewhat longer term," he said.
The market will be looking for further hints on this later
with ECB board members Benoit Coeure and Yves Mersch both due to
U.S. Federal Reserve officials William Dudley and Esther
George are also due to speak ahead of the release of the minutes
of the Fed's September meeting, and markets will be looking out
for clues on when the next rate hike will be.
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(Reporting by Abhinav Ramnarayan; Editing by Alison Williams)