* Euro zone bond yields up 2-3 bps on day
* Oil prices jump 3 percent overnight
* Expectations of ECB policy shift grow
* Euro zone periphery govt bond yields tmsnrt.rs/2ii2Bqr
By Dhara Ranasinghe
LONDON, May 11 Government bond yields rose
across the euro zone on Thursday as a jump in oil prices
reinforced expectations that a pick up in inflation could
encourage the European Central Bank to step back from its
ultra-loose monetary policy in coming months.
Oil prices extended their 3 percent-plus overnight gains,
their biggest one-day jump since Dec. 1, following a steep drop
in U.S. inventories and support from Iraq and Algeria for an
extension to supply cuts from the Organization of the Petroleum
That rally has helped boost the market's long-term euro zone
inflation expectations, with the five-year breakeven forward
bouncing off a low hit on Monday just below 1.60 percent
Analysts say the path for bond yields has turned higher as
fading political risks and stronger data fuel talk that the ECB
could signal a policy shift when it meets in June.
"Oil is one factor in the bond market move today but the
strongest factor driving the trend is a view that in June the
ECB may change its tone and forward guidance," said Patrick
Jacq, Europe rate strategist at BNP Paribas.
Ten-year bond yields in the euro area rose 2-3 basis points
on the day, with Germany's benchmark Bund yield up 2.5 bps at
It has risen roughly 28 bps in the past three weeks, a
period that coincides with the conclusion of the French
presidential election, a pick-up in global risk appetite and a
shift in focus to the timing of U.S. rate hikes and the ECB's
On Wednesday, ECB President Mario Draghi said it is too
early for the ECB to declare victory in its quest to boost
inflation despite signs the bloc's economic recovery is
But he also hinted at potential changes to the bank's
ultra-loose policy message, saying downside risks have further
"His comments were interpreted as a possible shift in June
in the ECB's statement," said DZ Bank strategist Daniel Lenz.
"In general we are now in an upward trend for yields so when we
have comments like these, they fuel the bond market moves."
Money markets also reflect rising expectations for a change
in ECB policy in the months ahead and price in 70 percent chance
of rate hike early next year.
Focus was expected to turn later in the session to Italy,
which auctions up 7.25 billion euros of government debt, and
Britain where the Bank of England meets.
For Reuters Live Markets blog on European and UK stock
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(Reporting by Dhara Ranasinghe; Editing by Janet Lawrence)