July 25, 2018 / 7:49 AM / 9 months ago

Euro zone bond yields slip as ECB moves into sight

* Most euro zone bond yields lower in early trade

* Thursday’s ECB meeting in focus

* US and EU to hold talks, trade likely to be discussed

* Germany to sell 5-year bonds

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

By Dhara Ranasinghe

LONDON, July 25 (Reuters) - Most bond yields in the euro area edged down on Wednesday, as a note of caution set in before a European Central Bank meeting and talks between the European Union and the United States that are likely to focus on trade.

Germany’s benchmark 10-year yield held below the previous session’s five-week high, indicating some preference for safe-haven government debt. Analysts said investors were also reluctant to push yields up much before Thursday’s ECB meeting.

The ECB could use the opportunity to firm up its guidance on quantitative easing after announcing in June that asset purchases will be tapered from September and end by year-end.

Bond markets are especially interested in the ECB’s outlook for interest rates and its plans for re-investing funds from maturing bonds bought under quantitative easing (QE) .

There is some ambiguity around what the ECB meant when it said last month that interest rates would stay steady “at least through the summer of 2019.”

Some rate setters believe this means a rate rise could come as early as July 2019. Others think a move is likely to come later.

“After the very dovish message we saw in June and the news flow since then that not everyone is happy with the market’s dovish take on that meeting, markets are likely to be sensitive to any signs that the door is open to an earlier rate hike,” said Nordea’s chief analyst, Jan von Gerich.

Trade in euro zone money markets suggests investors do not anticipate a rate rise until October next year.

In early Wednesday trade, most 10-year bond yields in the bloc were roughly 1 basis points lower. Germany’s 10-year Bund yield was at 0.38 percent, below Tuesday’s five-week high at 0.42 percent.

Concern about a trade conflict between major world economies continued to provide some support for higher-rated bond markets.

European Commission President Jean-Claude Juncker travels to Washington on Wednesday for talks after the U.S. imposed tariffs on EU steel and aluminium and U.S. President Donald Trump threatened to extend those measures to European cars .

The closely watched German Ifo business sentiment index due out on Wednesday may provide fresh evidence of how trade tensions are impacting Europe’s biggest economy.

Germany is scheduled to sell four billion euros of five-year bonds later in the day.

Reporting by Dhara Ranasinghe, editing by Larry King

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