August 28, 2017 / 8:03 AM / in a year

Euro zone bond yields creep up, Draghi says ECB policy working

* Euro zone bond yields creep up

* Euro hits 2-1/2 year high vs dollar

* Draghi says ECB policy is working

* Euro zone periphery govt bond yields

By Dhara Ranasinghe

LONDON, Aug 28 (Reuters) - Government bond yields in the euro area crept higher on Monday in the absence of any major policy cues from top central bankers at a gathering in Jackson Hole, Wyoming at the end of last week.

Federal Reserve Chair Janet Yellen did not mention monetary policy in a highly anticipated speech at Jackson Hole.

European Central Bank chief Mario Draghi, speaking late on Friday, said ECB policy is working and the euro zone’s economic recovery has taken hold even if more time is needed to lift inflation to the bank’s 2-percent target.

The euro climbed to a 2-1/2-year high against the dollar after Draghi held back from talking down the currency in his speech.

Bond yields were a tad higher across the euro zone, although trade was thinned by a public holiday in Britain.

German 10-year bond yields were just 1 basis points higher at 0.39 percent, a touch above eight-week lows hit last week at 0.37 percent.

“Most investors had hoped for more hints about the monetary policy outlook but there was nothing on this front from Draghi,” said DZ Bank rates strategist Daniel Lenz. “There is a risk that yields turn higher from here.”

After a summer lull, supply from euro zone governments picks up this week and is expected to put some upward pressure on bond yields as investors make way for new bond issuance.

Italy auctions up to 2 billion euros of bonds at an auction on Monday, while Germany is scheduled to sell 5 billion euros of two-year bonds on Tuesday.

The week ahead also sees the release of key economic releases such as German inflation data and U.S. employment numbers.

For Reuters Live Markets blog on European and UK stock markets see reuters://realtime/verb=Open/url=

Reporting by Dhara Ranasinghe; Editing by Andrew Heavens

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