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UPDATE 1-German yields nudge up as oil prices clear $50 a barrel
May 26, 2016 / 10:57 AM / a year ago

UPDATE 1-German yields nudge up as oil prices clear $50 a barrel

(Updates prices)

By John Geddie

LONDON, May 26 (Reuters) - Europe's benchmark German bond yield nudged up on Thursday as oil prices cleared $50 for the first time in 2016 and raised the prospects of a future boost to the bloc's near-zero inflation.

The tentative rise in yields, which followed a broad rally on Wednesday after Greece struck a debt deal with its international creditors, also came ahead of U.S. durable goods data that could provide further grist for those calling for another rate rise in the world's largest economy.

Dallas Federal Reserve Bank President Robert Kaplan said on Wednesday he would support raising interest rates in the "near future," though a vote by Britain on whether to leave the European Union will weigh on any Fed rate decision in June.

German 10-year bond yields - which move inversely to prices - rose 1.7 basis points to 0.17 percent, while the futures shed 23 ticks to trade at 163.67.

"The next key test looms today with an above-consensus U.S. durable goods orders to provide further evidence that the underlying momentum of the U.S. economy justifies further hikes," Commerzbank analyst Michael Leister said.

"Combined with the ongoing recovery in oil prices, we therefore hold on to our tactical shorts in the Bund future."

Brent oil futures climbed above $50 a barrel on Thursday for the first time in nearly seven months, boosted after U.S. government figures showed a sharper-than-expected drawdown in crude stocks last week.

Higher oil prices should help push up euro zone inflation - currently still in negative territory - later this year, and could see the ECB revise up its staff forecasts for consumer price growth at its meeting on June 2.

The ECB slashed its inflation outlook in March based on estimates for Brent crude averaging about $35 a barrel this year. Since then, the price of oil has risen more than 20 percent.

An important market gauge for long-term inflation often cited by the ECB - the five-year, five-year forward rate - has climbed back up to 1.50 percent but is still well below the ECB's inflation target of near 2 percent.

Even when the economic environment and monetary stimulus from the ECB are taken into consideration, 10-year yields in the euro area should be at least 70 bps above where they are now, analysts at UBS said in a note on Thursday.

Economists polled by Reuters were unanimous in expecting the ECB to hold policy steady at its meeting next Thursday, June 2, and a slim majority do not anticipate the ECB easing again this year.

Turning to the U.S. data due later on Thursday, economists polled by Reuters expect durable goods orders to have risen 0.5 percent in April, less than the 1.3 percent seen in March . Others, like Commerzbank, however are calling for a much higher increase of more than 2 percent. (Editing by Mark Heinrich)

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