By Dhara Ranasinghe
LONDON, Sept 29 Euro zone government bond yields
were broadly higher on Thursday, with Finland's 10-year yield
moving out of negative territory, as a surprise decision by OPEC
to trim crude oil output boosted both oil prices and risk
Oil prices soared more than 5 percent on Wednesday on news
of the first agreement by the Organization of the Petroleum
Exporting Countries to limit its production since 2008.
While there was some caution as markets opened on Thursday
as to how OPEC would implement such a plan, pushing oil prices
down slightly, the surprise deal boosted appetite for riskier
assets and refocused bond investors' attention on inflation
The result was a sell-off in bonds, which have seen strong
gains this week as concerns about the health of Germany's
biggest lender -- Deutsche Bank -- boosted the appeal of
Germany's benchmark 10-year bond yield at one stage was on
track for its biggest one-day rise in three weeks, rising 4
basis points to minus 0.11 percent, before
Two-year yields moved further away from a record low of
minus 0.71 percent hit at the height of Germany
banking fears on Tuesday.
Across the euro zone, bond yields were 3-4 bps higher, with
Finland's 10-year bond yield at 0.02 percent having closed in
negative territory for two straight days.
Patrick Jacques, European rates strategist at BNP Paribas,
said he thought the upward pressure on bond yields would prove
"Even if there's a 5 percent rise in oil prices, this will
not trigger a strong rebound in inflation and at these levels,
oil output is still higher than demand so we're unlikely to see
a massive rally in oil," he said. "So, I view this move in bond
yields as a short-term correction."
Germany, Europe's biggest economy, is set to release
preliminary inflation numbers for September later in the day.
That will be followed on Friday by the flash estimate of
September euro zone inflation numbers.
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
POLITICS IN PLAY
Elsewhere, Italy paid slightly more to sell 8.5 billion
euros ($9.5 billion) in bonds at an auction than it did last
month as investors fretted about political instability ahead of
a high-stakes referendum in December on constitutional reform.
In Spain, politics also moved back into the market spotlight
after senior members of the Socialist Party resigned en masse in
a bid to unseat their leader and break a political impasse that
has left the nation without a new government for nine months.
Spain's 10-year bond yield rose 3 basis points (bps) to
about 0.93 percent and was about 5 bps above
Wednesday's all-time low at about 0.88 percent.
"With Spain being the laggard among the peripherals, it
appears that some increased political uncertainty is weighing on
the market," DZ Bank strategist Christian Lenk said.
"The removal of support for Socialist leader (Pedro) Sanchez
could pave the way for a new leader but it's far from certain.
On the other hand, if he steps down that could increase the
possibility of the Socialists supporting a government led by
Rajoy," he said, referring to acting Prime Minister Mariano
(Reporting by Dhara Ranasinghe; Editing by Mark Trevelyan)