* German Bund yields set for first weekly fall in a month
* Euro production data weak, US data below forecasts
* Cautious ECB tone weighs
* Euro zone periphery govt bond yields tmsnrt.rs/2ii2Bqr
(Updates with U.S. data)
By Patrick Graham
LONDON, May 12 Doubts over the global growth
outlook and the pace at which the European Central Bank will
move towards tighter monetary policy sent European government
bond yields lower on Friday.
Analysts said there was talk of an upgrade of Ireland's
credit rating by Moody's in a scheduled update on the country
due on Friday, and a softer tone to stock markets offered some
support to prices generally.
Greek government bond yields – still minimally traded after
years of debt crisis and EU bailouts - were volatile
as investors weigh the chances of a test return to
bond issuance this summer.
But the main topic of discussion was hints of weakness in
wage growth and inflation at the end of a week that has seen the
Bank of England cut its forecasts and New Zealand's central bank
shock markets by not shifting to a tighter policy stance.
In Europe, ECB policymakers have sounded cautious on any
swift move to rein in the bank's bond-buying programme later
this year, cooling expectations of what it may say after its
next policy meeting in June.
Risks to the euro zone economy are still not balanced and
the ECB needs to see evidence that wage pressures are feeding
into inflation before it shifts its policy stance, governing
council member Philip Lane said on Friday.
An unexpected 0.1 percent fall in euro zone industrial
output on Friday also played in, as did a softer tone to U.S.
Weaker-than-expected data on consumer prices and retail
sales in April scaled back expectations of a strong U.S.
economic rebound in the second quarter, pushing U.S. Treasury
"Latest comments from the ECB have been dovish and that has
been supportive for bond markets," said Cyril Regnat, fixed
income strategist at Natixis. "What's happening in the U.S. is
In late trade, 10-year bond yields were down 3-5 basis
points across the euro zone.
The benchmark 10-year German yield fell 4 bps
on the day to 0.39 percent and was set for its first weekly fall
in a month, while benchmark U.S. Treasury yields tumbled 7 bps
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, underpinning 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.
Data on Friday also showed Germany's economy grew 0.6
percent in the first quarter, 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," said Peter
Chatwell, head of euro rates strategy at Mizuho in London.
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
(Additional reporting by Dhara Ranasinghe; editing by John