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CORRECTED-UPDATE 1-Gilts push euro zone bond yields up as BoE "arch-dove" turns hawk
September 15, 2017 / 3:37 PM / in a month

CORRECTED-UPDATE 1-Gilts push euro zone bond yields up as BoE "arch-dove" turns hawk

(Adds dropped word “arch-dove” in headline)

* Sell-off begins after BoE “arch-dove” turns into hawk

* German 10-year yields hit one-“arch-dove” month high after Gilt yield spike

* Economists expect ECB to announce tapering in October

* U.S. rate hike bets increase on strong domestic consumer prices

* Euro zone periphery govt bond yields tmsnrt.rs/2ii2Bqr

By Abhinav Ramnarayan

LONDON, Sept 15 (Reuters) - A euro zone government bond sell-off resumed on Friday after hawkish rhetoric from a Bank of England policymaker bolstered a sense that central banks across the developed world are moving into tightening mode.

Earlier, a missile test from North Korea on Thursday night had made many retreat to safe-haven assets such as German government bonds.

But comments from British rate-setter Gertjan Vlieghe -- who has previously been strongly in favour of keeping borrowing costs at their record low -- that the BoE might need to raise interest rates in the coming months pushed yields higher again.

“Such comments show that even an arch-dove such as Vlieghe has fallen in line with the view that policy will have to be tightened in the coming months,” said Richard McGuire, Rabobank’s head of rates strategy.

“And this follows the hawkish signals from the BoE on Thursday, so it’s not surprising that yields were pushed higher.”

British 10-year Gilt yields rose as much as 10 basis points to 1.34 percent on Friday.

Euro zone bond yields were then pulled up; bonds in the world’s major economies often move in sympathy with one another as investors switch between them.

Germany’s 10-year government bond yield, the benchmark for the euro zone, hit a one-month high of 0.45 percent, up 2.5 bps on the day and up almost 5 bps from the session’s lows.

Other euro zone bond yields were 1 to 2 basis points higher on the day.

Euro zone government bond yields have been rising all week on expectations the European Central Bank will announce when it meets next month that it is to start to tapering its asset purchases.

A Reuters poll of economists showed they expect the ECB to announce in October that it will extend its asset purchases by six months, but reduce the amount buys each month to 40 billion euros from January.

Expectations are also growing that the U.S. Federal Reserve will raise rates again this year after Thursday’s stronger-than-forecast increase in consumer prices in the world’s largest economy.

“The market will be watching the Fed next week very closely, first because of balance sheet reduction and, as well, because the market is now pricing a higher probability of a rate hike in December,” said DZ Bank strategist Rene Albrecht.

A spate of supply has also helped push yields up this week. Ireland, Italy, Austria, Germany and the Netherlands have between them sold over 20 billion euros of bonds over the past week.

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 Kevin Liffey

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