September 13, 2018 / 10:28 AM / 2 months ago

UPDATE 2-ECB helps push German bond yield to six-week high

* ECB keeps policy unchanged, inflation fcast unchanged

* Turkey delivers larger than expected rate hike

* U.S. inflation numbers disappoint

* Italy sells 7.75 bln euros of bonds

* Euro zone periphery govt bond yields tmsnrt.rs/2ii2Bqr (Updates with market reaction to ECB, US CPI, Turkey CBRT)

By Dhara Ranasinghe and Virginia Furness

LONDON, Sept 13 (Reuters) - German bond yields rose to six-week highs on Thursday as a rate hike from Turkey and reports of progress in Brexit talks dented demand for safe havens, while the European Central Bank sounded upbeat on the inflation outlook.

The ECB kept policy unchanged, as expected, with President Mario Draghi saying the central bank was on track to end bond purchases this year and raise interest rates next autumn.

The Bank maintained its forecast of annual inflation at 1.7 percent through to 2020 and noted a pick up in wage pressures — something that analysts put down as slightly hawkish.

“We though Draghi was pretty bullish and he referred to vigorous jobs growth,” said Chris Scicluna, head of economic research at Daiwa Securities.

But with disappointing U.S. inflation data, released just as Draghi started speaking, bond yields in much of the bloc only started moving higher after the news conference, although the euro rallied.

The rise in bond yields gathered momentum after a report that Britain and the EU had made progress on the Irish border issue, a key hurdle in agreeing a Brexit trade deal.

That further dented demand for safe-haven assets, just as risk assets received a boost from a larger-than-expected 625 basis points rate hike from Turkey that stemmed the falling lira.

“What we saw initially was that the U.S. inflation data drove yields down a bit, but there was some hawkish elements from the ECB press conference,” said Jan von Gerich, chief analyst at Nordea.

Germany’s 10-year government bond yield rose to a six-week high at 0.443 percent. Most other 10-year bond yields were up around 2 bps.,,.

“The ECB noticed wages picking up more than in the past and that could reflect some confidence on the inflation outlook,” said Rabobank rates strategist Lyn Graham-Taylor.

“There was not a lot of new detail from the press conference and reinforces that the ECB is on auto pilot in for now.”

Italian bond yields were lower, having reversed earlier rises, as sentiment towards riskier assets improved.

Italy’s 10-year yield was last down just a basis point at 2.78 percent, while the Italian/German bond yield gap narrowed to around 234 bps from 237 bps late on Wednesday.

Elsewhere, U.S. Treasury yields fell after data showed U.S. consumer prices rose less than expected in August, moderating expectations that the Federal Reserve will raise interest rates twice more in 2018.

Reporting by Dhara Ranasinghe; Editing by Keith Weir and Toby Chopra

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