* Investors take cue from policymakers, stay cautious on
* German bond yields remain well below recent highs at 0.36
* Political hurdles remain after French presidential
* Euro zone periphery govt bond yields tmsnrt.rs/2ii2Bqr
By Abhinav Ramnarayan
LONDON, May 26 Looming political and policy
risks kept euro zone government bond yields close to recent lows
on Friday, keeping investors from putting too much faith in
improved economic data.
Despite a market-friendly result in the French presidential
election and strong inflation and private sector numbers coming
out of the bloc recently, most euro zone bond yields are trading
well below recent highs.
Germany's 10-year government bond yield, the benchmark for
the region, fell 1 basis point to 0.36 percent -- comfortably
above the 0.20 percent level at the start of the year but well
below the March high of 0.51 percent. Other euro
zone yields also edged lower on the day.
Investors were taking their cue from policymakers and
staying cautious on the brightening political and economic
picture in Europe and its implications for monetary policy.
"We have had a few positive political outcomes, but we still
have Brexit negotiations to come, Italian and German elections,
a potential Catalonia referendum and the unpredictable factor of
Donald Trump's presidency," ING strategist Padhraic Garvey said.
"So even though we are moving towards higher rates in the
U.S. and tapering in Europe, in general policymakers are being
This was underlined this week when top European Central Bank
officials made it clear they would not favour changing the
policy path they had already set forward.
Analysts said policymakers' recent cautious had soothed bond
investors and pulled yields back from levels hit earlier this
A survey showed this week that businesses across the euro
zone maintained April's blistering growth rate in May, pointing
to 0.7 percent of economic growth in the second quarter of the
"Certainly this is a positive assessments if the way the
euro zone economy is heading, but you could say the surveys are
running ahead of the hard data," said Investec economist Philip
Shaw. "There is still a degree of scepticism."
A poll on voting intentions in next month's British general
election pushed the euro to a two-month high against sterling
, possibly keeping a lid on euro zone bond yields.
Sterling dived more than half a percent against both the
dollar and euro after an opinion poll two weeks before the vote
showed Prime Minister Theresa May's lead over the main
opposition Labour Party down to just 5 percentage points.
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
(Reporting by Abhinav Ramnarayan; Editing by Angus MacSwan)