September 26, 2019 / 7:56 AM / 2 months ago

Euro zone yields up; eyes on ECB after Lautenschlaeger quits

* Euro zone periphery govt bond yields tmsnrt.rs/2ii2Bqr

By Yoruk Bahceli

LONDON, Sept 26 (Reuters) - Euro zone bond yields inched up on Thursday as optimism on trade talks eased demand for safe-haven assets, while the resignation of Sabine Lautenschlaeger from the European Central Bank’s board amplified doubts around the sustainability of the bank’s stimulus measures.

Lautenschlaeger, Germany’s appointee to the board and a policy hawk, will resign from Oct. 31, before the end of her full term. The ECB did not give a reason for her resignation.

Lautenschlaeger was among the third of ECB policymakers who opposed resuming of asset purchases at the bank’s Sept 12 meeting, an unprecedented level of dissent. Several policymakers have questioned the necessity and effectiveness of the measures since then.

“It looks like Draghi is currently on the defensive and needs to explain what he’s up to and why he was the frontrunner of an ECB taking an even more expansionary stance,” said DZ Bank rates strategist Daniel Lenz.

Several ECB policymakers, President Mario Draghi, are due to speak at 1330 GMT on Thursday. The bank’s economic bulletin, which presents economic and monetary information that forms the basis of its policy decisions, is due to be released Thursday morning.

“If the tone [in the economic bulletin] is negative enough it could justify the [ECB’s] expansionary stance and could pull yields to the downside,” Lenz said.

“If the picture is not as negative as Draghi has outlined, there would be growing doubts as to whether the ECB will keep up its very expansionary stance for as long it said.”

Most euro zone bond yields rose, extending increases from late Wednesday. Ten-year yields were up 1 basis point across the region .

Germany’s 10-year bond yield was at -0.57%, above almost two-week lows hit the previous session.

Bonds are extending a sell-off that began on Wednesday after United States President Donald Trump said a deal to end a nearly 15-month trade war with China “could happen sooner” that people think.

Elsewhere, France will present its 2020 budget to journalists late on Thursday and to parliament on Friday.

Focus will be on more than 10 billion euros of tax cuts . Policymakers say monetary easing is reaching its limits in reviving the euro zone’s sluggish economy, but Germany is ambivalent about providing fiscal stimulus even though it’s on the brink of recession. (Reporting by Yoruk Bahceli, editing by Larry King)

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