June 4, 2020 / 10:40 AM / a month ago

UPDATE 1-Euro zone bond yields steady ahead of ECB meeting

* Euro zone periphery govt bond yields tmsnrt.rs/2ii2Bqr (Updates prices, adds details)

By Yoruk Bahceli

LONDON, June 4 (Reuters) - Euro zone bond yields held steady ahead of the ECB’s policy meeting where the bank is largely expected to expand its bond buying programme.

Many analysts expect the European Central Bank to increase its emergency bond purchases by 500 billion euros, as purchases at their current rate are expected to run out by October.

Focus is also on whether the bank will expand purchases to include “fallen angels” - companies that have lost their investment-grade ratings during the coronavirus crisis.

“It will be a very close call with the hawks potentially swaying a consensus-minded President Lagarde to defer the announcement, also to keep pressure on the politicians to deliver on the EU Commission’s 750 billion euro Next Generation EU Fund,” Commerzbank analysts told clients, referring to last week’s recovery fund proposal.

The market now feels a little more tentative about an expansion of the bond purchases, according to Mizuho analysts. German 10-year yields are up 10 basis points this week, while their Italian equivalents are up 6 basis points.

Most euro zone bond yields were only marginally changed ahead of the meeting. Germany’s 10-year yield was steady at -0.35%, near seven-week highs. Italian 10-year yields were at one-week highs of 1.58%.

Whether or not the ECB increases the size of asset purchases will be particularly important for Italy, as the bank has kept a lid on the country’s borrowing costs by buying a much larger share of its debt than normal under such purchase schemes, and BTPs are currently pricing in expectations of additional purchases.

In the primary market, France raised 11 billion euros via an auction of 2030 and 2052 bonds.

Greece is likely to tap bond markets for the third time this year in the coming months, Finance Minister Christos Staikouras said on Thursday.

Government officials told Reuters in May that the country plans at least two more bond issues by the end of the year, adding to the 4.5 billion euros it has already raised via 15- and 7-year sales.

The German government agreed a new 130 billion euro stimulus package on Wednesday to be delivered this year and next year, adding to efforts to speed up the country’s recovery form the coronavirus.

With most of the stimulus due to be provided by the federal government, Danske Bank analysts said they expect German government bond issuance to increase.

Reporting by Yoruk Bahceli; Editing by Andrew Heavens, Kirsten Donovan

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