* Euro zone periphery govt bond yields tmsnrt.rs/2ii2Bqr (Adds details, prices)
MILAN, Sept 11 (Reuters) - Euro zone bond yields fell on Friday, reversing their rise a day earlier, as traders said European Central Bank (ECB) policymakers appeared to strike a slightly more dovish tone than on Thursday.
Speaking a day after the ECB took an unexpectedly relaxed stance on growth and inflation at its regular policy meeting, chief economist Philip Lane and French central bank chief Francois Villeroy de Galhau highlighted risks from a strong currency, noting it clearly mattered for policy because it curbed price pressures.
“The tone is dovish overall, but there is no major departure from the assessment at the press conference yesterday,” said Antoine Bouvet, senior rates strategist at ING, referring to Lane’s comments.
Germany’s benchmark 10-year bond yield fell 5 basis points (bps) to -0.48%, down from a more than one-week high hit after Thursday’s ECB meeting at around -0.42%.
Italian bond yields were also broadly lower, with 10-year BTP yields touching a one-week low at 1.036%. The closely-watched Italian/German 10-year bond yield gap held at around 151 bps.
The ECB’s measured view on the exchange rate and its upgrade to growth forecasts on Thursday had dented hopes for an immediate dovish response from the bank, driving yields to their highest level in a week.
“We think the ECB will announce a second recalibration of the PEPP (Pandemic Emergency Purchase programme) before March 2021. The strategy review will resume shortly, and the inflation target could be changed,” a Barclays research note said.
And according to Commerzbank analysts, while ECB speakers should leave monetary discussions alive, “the focus should then shift back to the fiscal side, where the EU response will be taking shape.”
A fall in U.S. Treasury yields added to downward pressure on euro area bond yields. U.S. Treasury yields fell on Thursday after the government sold $23 billion in 30-year bonds to solid demand.
Besides, volatility in stocks fuelled by concerns about elevated equity valuations helped safe-haven bonds as risk-appetite across markets abated.
“Core fixed income markets seem to have become more sensitive to developments in equity markets recently, we have seen a very tight correlation between equities and core bond yields,” analysts at UniCredit said in a note. (Reporting by Stefano Rebaudo and Dhara Ranasinghe; Editing by Gareth Jones and Mark Potter)
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