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Euro zone bond yields hold steady on dovish policy guidance

* Yields show little reaction to FT story on ECB policy review

* Spanish bonds unmoved by downgrade to credit outlook

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

LONDON, Sept 21 (Reuters) - Euro zone bond yields were little moved in early Monday trading with last week’s dovish forward guidance from central banks keeping yields stuck in narrow ranges, while investors await a clutch of economic data this week.

The Financial Times, citing two European Central Bank governing council members, reported that the ECB had launched a review of its emergency bond purchase scheme that was introduced in response to the coronavirus crisis in March, but the story had little immediate impact on bond yields.

The Federal Reserve last week repeated its message of keeping interest rates low and the Bank of England said it was looking more closely at how it might cut interest rates below zero. That followed more dovish noises from ECB policymakers.

Very accommodating monetary policy has pushed Italian yields to six-month lows but kept other yields stuck in tight ranges with little direction.

“More than ever, developments in the core fixed-income universe are being determined by central-bank policies,” said Unicredit analysts.

“A number of developments over the past few months would typically have pushed yields up had it not been for powerful countering monetary-policy measures, mainly consisting of low key interest rates, dovish forward guidance and asset purchase programs.”

They added that core bond yields “will most probably continue to show only minor yield swings in either direction, with general market sentiment likely to be the main driver on a day-to-day basis”.

The German 10-year yield was unchanged at -0.487% , while French yields were also little moved, with the 10-year yield at -0.227%.

Spanish bond yields edged 1 to 2 basis points higher, with the 10-year at 0.297%.

Credit ratings agency S&P Global Ratings on Friday revised Spain’s outlook to “negative” from “stable”, saying its policy response to rising economic and fiscal challenges was at risk from political fragmentation and reform fatigue. It, however, maintained its rating of Spain at ‘A/A-1’ and market reaction was marginal.

Italian yields, which had fallen to six-month lows last week, inched higher. The 10-year yield was at 0.976% after last week touching as low as 0.942%. Italian bonds have been one of the biggest winners from the European Union agreeing a huge stimulus fund and continued ECB asset purchases.

Attention will turn to the state of the euro zone economic recovery later this week, with flash purchasing manager index data for September due on Wednesday. (Editing by Ed Osmond)

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