LONDON Dec 20 Optimistic signals from two of
the world's most influential central banks and a rescue plan for
Italy's ailing lenders halted sharp falls in euro zone
government bond yields on Tuesday.
Nerves around a faltering last-ditch private sector
recapitalisation for Italian lender Monte dei Paschi and
apparently politically motivated killings in Germany and Turkey
pushed yields on Europe's safe haven benchmark Bund to two-week
lows on Monday.
But comments by Federal Reserve chair Janet Yellen on the
strength of the U.S. jobs markets followed by a more upbeat view
of the economy from the Bank of Japan, appeared to kick the
rally into reverse on Tuesday.
Analysts said the decision by the Italian government to seek
parliamentary approval to borrow 20 billion euros to underwrite
the stability of its banks, starting with Monte dei Paschi, was
also helping soothe jittery markets.
German 10-year bond yields rose 2 basis points to 0.28
percent, while other euro zone equivalents were
mostly higher on the day.
"The market is changing focus nowadays quite quickly," DZ
Bank strategist Daniel Lenz. "Yesterday we had a lot of focus on
Italy and now it is more the economic assessment that is driving
While Yellen didn't mention monetary policy in her speech to
university students on Monday, she said graduates were entering
the strongest jobs market in nearly a decade.
Some investors had been wary of Yellen potentially pouring
cold water on market expectations for a faster pace of rate
hikes next year, so her upbeat assessment of the economy brought
Yellen's remarks were followed by a positive assessment of
Japan's economic prospects from the BOJ. While the central bank
kept monetary policy on hold on Tuesday, its comments reinforced
market expectations that its future policy direction could be an
increase - not a cut - in interest rates.
In the euro zone, a government bailout of Monte dei Paschi
could come as early as this week, if the bank fails to pull off
its own privately funded rescue plan.
While that appears to have calmed investor nerves for now,
it could be tough for the week-old administration of Prime
Minister Paolo Gentiloni, given that investors are required to
bear losses under EU bailout rules.
Italian 10-year bond yields rose 5 basis points to 1.88
percent on Tuesday, edging away from one-month
lows hit last week.
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 Jeremy Gaunt)