(Updates prices for close)
By Abhinav Ramnarayan
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 rebounded from a record low in trade-weighted terms
on Wednesday after Britain's prime minister said she would give
lawmakers some scrutiny of the Brexit process and would seek
"maximum possible access" to Europe's single market.
"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 could be temporary.
"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.
Given the optimistic tone in European markets, yields on
government bonds -- viewed as a safe haven asset -- moved
higher, with Germany's 10-year Bund up 3 basis
points at a one-month high of 0.07 percent.
In lower-rated euro zone debt, the yield on Spain's 10-year
bond rose 5 bps to 1.15 percent, its highest since late July.
Analysts said worries that central banks could be reaching
limits should continue to exert upward pressure on yields.
Talk that the European Central Bank might reduce the scale
of its asset purchases before the stimulus programme finally
ends has particularly unnerved investors in recent days.
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."
The market will be looking for further hints on this in a
speech due to be given by ECB board member Yves Mersch on
Fellow board member Benoit Coeure on Wednesday morning said
that the Eurogroup of euro zone finance ministers is working on
a solution to make Greece's public debt sustainable and maintain
the International Monetary Fund's involvement in the country's
Ahead of the release of minutes of the U.S Federal Reserve's
September meeting later on Wednesday, New York Fed President
William Dudley said the central bank can be "gentle" in removing
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. Their comments will be studied
by markets for clues on the likely timing of the next increase
in U.S. interest rates.
Money markets are pricing in around a 60 percent chance of
the U.S. raising interest rates in December, according to CME's
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
(Editing by Alison Williams, David Goodman and Alexandra