* Doubts grow whether stimulus can last with policymakers
* Germany's 10-30-year bond yield spread widest since Jan
* Italy's 30-year spread widens on possible long-dated
* Euro zone periphery govt bond yields tmsnrt.rs/2ii2Bqr
By Abhinav Ramnarayan
LONDON, June 2 A growing split among euro zone
policymakers has made investors question how long the current
level of stimulus can last, leading to a reduction in demand for
long-dated government bonds in the bloc.
The yield spread between Germany's 10 and 30-year bonds hit
its widest in 18 months on Friday. Long-dated bonds tend to be
more sensitive to changes in the political and policy outlooks,
and more likely to sell off if there is a move towards
While European Central Bank chief Mario Draghi insisted this
week that extraordinary stimulus measures are still necessary,
other policymakers have opposed this view ahead of next week's
Bundesbank President Jens Weidmann, a long-time critic of
the ECB's exceptional stimulus, said on Wednesday that with the
euro zone recovery gaining strength, inflation would continue to
rise even if the ECB reduced stimulus.
Analysts say this split among policymakers is behind the
reduced demand for long-dated bonds, but also explains the
potential for issuance in that part of the curve as borrowers
seek to lock in low costs.
"While there are many uncertainties about what the ECB will
do, there is a growing feeling that we are now past the peak of
quantitative easing - and in that situation, investors are most
concerned about potential losses on long-dated bonds," said DZ
Bank strategist Daniel Lenz.
A Reuters poll of economists showed expectations are for the
ECB to raise its assessment of risks to balanced or begin
discussing a shift from its bias to ease policy at the June 8
Commerzbank analysts say the euro zone government bond
curves - the gap between yields on short and long-dated bonds -
can steepen further with speculation about more supply and less
quantitative easing on the rise.
The spread between Germany's 10 and 30-year bond yields hit
86 basis points early on Friday, its highest since January 2016,
before narrowing a touch.
The spread between Italy's 10 and 30-year bond yields was at
111 basis points, a 2 1/2 month high.
"The ultra-long widening stands out compared to the much
more contained moves across the curve, suggesting that
speculation regarding a new 30-year BTP benchmark are at play
with the (Italian debt agency) to front-run potential election
fears," the analysts said in a note.
Most 10-year euro zone bond yields edged lower 1-2 bps on
Friday. Italy's 10-year yield was an outperformer with a 2 basis
point drop to 2.22 percent, but only after having risen 15 bps
since the start of the week.
U.S. employment figures due out later on Friday could have
further implications for monetary policy, with analysts
suggesting a strong figure could mean that the U.S. Federal
Reserve will hike rates in June.
A Reuters poll shows economists expect 185,000 non-farm jobs
were added in May.
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
(Reporting by Abhinav Ramnarayan; Editing by Andrew Bolton)