LONDON Jan 2 Euro zone government bond yields
edged down on Monday as the market started the new year on a
firm note, with data giving further insight into inflation
trends in the currency bloc on the horizon.
As attention shifts to signs of a pick-up in price pressures
globally, Wednesday's flash inflation numbers could be a litmus
test of sentiment in regional bond markets.
Economists polled by Reuters forecast euro zone inflation to
hit the 1 percent year-on-year level in December.
Inflation expectations in the euro zone, measured by the
five-year, five-year breakeven forward, are near
their highest levels in more than a year.
A bounce in oil prices, signs of stronger economic growth
and a broader reassessment of the inflation and growth outlook
after the election of Donald Trump as U.S. president have all
boosted investors' inflation expectations.
"This week's expected rise in December inflation to over 1
percent looks set to fuel concerns further over inflation
expectations, bond yields and ECB policy, while survey data
should confirm robust GDP growth at the end of last year,"
analysts at Societe Generale said in a note.
After stronger-than-expected Spanish inflation numbers last
week, French and German inflation numbers on Tuesday also have
the potential to affect bond markets. Spanish consumer prices
rose at their fastest annual pace in almost 3-1/2 years in
December, data on Friday showed.
German 10-year bond yields, the benchmark for borrowing
costs in the euro area, fell 1 basis point to 0.20 percent but
held above a seven-week low hit last week at 0.166 percent
Most other euro zone bond yields were 1-2 bps lower on the
News that a gunman opened fire on New Year revellers at a
packed nightclub on the shores of Istanbul's Bosphorus waterway
on Sunday killing at least 39 people provided some support to
safe-haven bonds, but trading was generally subdued with many
markets were closed for a public holiday.
Analysts said they expected bond supply this week to put
some upward pressure on yields. France said on Friday it would
sell 8.5 billion to 9.5 billion euros ($9 billion to $10
billion) of long-term government bonds on Thursday. Spain also
holds a bond auction on Thursday.
"While net issuance will be negative, plenty of duration has
to be digested as the French (treasury's) heavy ultra-long start
into the year pushes risk-equivalent issuance above last year's
weekly average," said Commerzbank analyst Michael Leister.
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 John Stonestreet)