* Euro zone periphery govt bond yields tmsnrt.rs/2ii2Bqr
By Patrick Graham
LONDON May 12 European government bond yields
steadied on Friday after solid German growth numbers and
comments from European Central Bank officials did little to fuel
expectations for a reining in of the bank’s ultra-loose monetary
A weaker opening on stock markets offered some support to
prices, while Greek government bond yields – still minimally
traded after years of debt crisis and EU bailouts - were
volatile and mixed as investors weigh the chances of a test
return to bond issuance this summer.
By 0812 GMT, the benchmark 10-year German government yield
inched down just over 1 basis point on the day to
Yields on the euro zone's weaker borrowers like Italy,
Portugal and Spain, were all also 1-3 basis points lower as
investors awaited announcements of volumes for expected bond
sales next week by France and Spain.
"Things do look calmer with equity markets having
stabilised," said Peter Chatwell, head of euro rates strategy at
Mizuho in London.
"This is probably just a day for consolidation with some
focus on supply for next week. ... The market is still
contemplating that there will be a fair amount (of issuance) and
also how much we will see in syndicated issues."
ECB vice-president Vitor Constancio echoed the caution of
the bank's head Mario Draghi and chief economist Peter Praet on
Thursday in the face of growing calls from Germany to wind down
the bank's 2.3 trillion euros bond-buying programme.
Expectations of a change at least in language from the bank
in June have grown, underpinned a steady rise in Bund yields in
the past month, but for shorter-dated notes they remain deep in
negative territory and below this year's highs.
Friday's data showed Germany's economy grew 0.6 percent in
the first quarter, bang in line with expectations.
"The bias is clear, that the next move will be towards
tightening and what they (ECB officials) are trying to do is
mitigate the market factoring in that too much," Chatwell said.
"That is why there is so much communication going on and why
Praet is being so detailed and erring on the dovish side to
prevent the market from acting too severely."
Greek government borrowing costs hit their lowest level in
more than five years on Wednesday as Athens looked set to clinch
vital bailout loans from its international lenders.
But there is scepticism on whether it will eventually be
added back into the ECB's bond-buying programme as officials
mull a return to markets later this year.
"Latest headlines from Greece (see overnight news) underpin
the impressive rally in (Greek bond prices) but we believe that
high hopes for being included in QE will get disappointed,"
Commerzbank analysts said in a morning note.
The yield on Greece's 10-year bond -- an often
volatile indication of the cost for the government to raise
long-term cash in financial markets -- were roughly unchanged on
Friday, while 2-year yields rose by 22 basis points and 5-year
yields fell 10 basis points, according to Reuters data.
For Reuters 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
(Writing by Patrick Graham; Editing by Hugh Lawson)