* Euro zone periphery govt bond yields tmsnrt.rs/2ii2Bqr
By Yoruk Bahceli
AMSTERDAM, June 18 (Reuters) - Euro zone bonds held steady in early Thursday trade ahead of the results of the ECB’s new funding round of cheap loans to banks, with strong take-up expected to support the bond market.
The European Central Bank will announce the TLTRO results at 0930 GMT - the first tender since it decided to offer banks more generous funding conditions at its April meeting. They can now take out three-year loans for as low as minus 1%.
Around 1.4 trillion euros is expected to be taken up, which would make it the ECB’s biggest single lending operation .
“The high probability that today will see significant liquidity injections into the market should provide further impetus for credit and EGB (euro zone government bond) periphery spreads to tighten,” Mizuho analysts told clients.
“The TLTRO cheapness and likely high utilisation in Italy should drive periphery short-end outperformance, as carry in that part of the curve becomes attractive to banks.”
The main benefit to bond markets is the “carry trade”, where banks are expected to use the cheap ECB loans to buy higher yielding assets such as short-dated Italian government bonds.
German 10-year government bond yields were unchanged at -0.42%. Italian 10-year yields were also unchanged at 1.37%.
The market will also need to digest a chunky amount of supply on Thursday, with Spain and France scheduled to sell a combined volume of nearly 20 billion euros via bond auctions.
Bonds showed little reaction to news that France hopes to reach an agreement on the European Union’s proposed 750 billion euro recovery fund in July, according to a presidential adviser. But he also said differences remained over whether countries like Italy should receive loans or grants.
The news comes ahead of a video conference between EU leaders on Friday that investors will be watching closely. (Reporting by Yoruk Bahceli; Editing by Toby Chopra)