(Inserts dropped word in 9th paragraph, removes 10th paragraph)
By Abhinav Ramnarayan
LONDON Dec 14 Long-dated euro zone bond yields
fell on Wednesday ahead of a U.S. Federal Reserve meeting which
investors expect to deliver the first rate hike in 12 months and
at the same time flag its stance for 2017.
Whereas a hike in rates would normally push yields higher,
on this occasion it is fully priced in and the market is
focusing on what direction Fed Chair Janet Yellen will take.
"We do not rule out the possibility that the FOMC tightens
with a dovish twist and downgrades the assessment of the policy
stance in the FOMC statement," ING strategist Martin Van Vliet
The yield on Germany's 30-year bonds led the
falls, dropping 5 basis points to 1.10 percent. German 10-year
yields fell 2 bps to 0.33 percent.
Dutch, French and Austrian 30-year yields were down 3-4 bps.
"Investors took advantage of low valuations ahead of the
up-coming U.S. key-rate decision to pile into government bonds,"
DZ Bank strategists said in a note. "Above all, long-dated paper
was sought after in this environment."
Yields fell in other parts of the curve as well, extending
Tuesday's move. ING strategists say the rally over the last two
sessions is a delayed reaction to the European Central Bank's
extension of its bond-buying scheme, announced last week.
Though the ECB said it would buy 60 billion euros of assets
a month from April 2017 onwards, compared with 80 billion
currently, it extended the programme to the end of 2017. Market
expectations were for a six-month extension to September 2017.
Italian government bond yields held around one-month lows
after interim Prime Minister Paolo Gentiloni won an initial vote
of confidence in the lower house of parliament overnight,
although he is expected to face a sterner test in the upper
The yield on Italy's 10-year government bond
edged lower to 1.87 percent, well off Monday's high of 2.13
This week the market has taken heart from the formation of
the interim government and positive developments in the
country's banking sector.
For Reuters new Live Markets blog on European and UK stock
markets see reuters://realtime/verb=Open/url=http://emea1.apps.cp.extranet.thomsonreuters.biz/cms/?pageId=livemarkets
(Editing by Alexander Smith)