(Adds detail on Portugal bonds)
By Dhara Ranasinghe
LONDON, Sept 19 Germany's benchmark 10-year bond
yield held above zero percent on Monday, with the market's
focus firmly on central bank meetings in Washington and Tokyo
The Federal Reserve, which meets on Wednesday, could give a
clear signal of an interest rate rise to come even if it meets
market expectations for a pause this month.
Data showing U.S. consumer prices rose more than anticipated
in August increased the chances the Fed will raise rates later
this year, pushing U.S. Treasury yields higher on Friday.
The Bank of Japan, which concludes a two-day meeting on
Wednesday, is particularly seen as a source of volatility.
It could make negative interest rates the primary focus of
its monetary policy, heightening market disquiet over what any
move away from quantitative easing reveals about the waning
firepower of global central banks.
With three years of massive money printing failing to push
up inflation, the BOJ is expected to move away from shock
therapy and towards a protracted battle against deflation,
according to sources familiar with its thinking.
What the BOJ says and does could have ramifications for
euro zone bond markets, analysts said, since the European
Central Bank is in the midst of its own QE programme and there
are concerns its policy options are also narrowing.
"QE has always been a tool to push down bond yields, and now
the BOJ is suggesting it could move away from this," said David
Schnautz, an interest rate strategist at Commerzbank. "This has
made markets in Europe wary, because what the BOJ does could be
relevant to the ECB."
The 10-year German Bund yield rose 1.1 basis points to 0.013
percent, having briefly dipped into negative
territory earlier in the session.
Disappointment with a lack of action at an ECB meeting
earlier this month has put upward pressure on euro zone bond
yields and fuelled a perception that major central banks are
running out of tools to boost growth and inflation.
Lower-rated euro zone bonds, however, saw their yields fall,
with Portugal leading the way.
The yield on Portugal's 10-year benchmark fell
10 bps to 3.39 percent after ratings agency S&P on Friday
affirmed its rating at BB+ and maintained its stable outlook
However, the drop in yield comes after eight sessions when
it increased sharply, from 2.97 percent on Sept. 8 to a high of
3.52 percent on Friday.
"The magnitude of the rally (on Monday) is not significant
compared to the widening that came before," said Antoine Bouvet,
rates strategist at Mizuho. "Clearly, the uncertainty is still
high in Portugal."
For Reuters new Live Markets blog on European and UK stock
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(Additional reporting by Abhinav Ramnarayan. Editing by Larry