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UPDATE 2-S. European bond yields rise on firm data, ECB minutes
November 23, 2017 / 11:21 AM / 25 days ago

UPDATE 2-S. European bond yields rise on firm data, ECB minutes

* Italy-German yield spread widens 3 bps from early trade

* Minutes show some ratesetters wanted clean end to APP

* Surveys outperform expectations, pushing yields higher

* Euro zone periphery govt bond yields tmsnrt.rs/2ii2Bqr (Writes through)

By Dhara Ranasinghe and Abhinav Ramnarayan

LONDON, Nov 23 (Reuters) - Southern European government bond yields underperformed on Thursday after a flurry of upbeat economic data and with European Central Bank’s October meeting minutes showing some ratesetters wanted a clean end to asset purchases in 2018.

Italy, Spain and Portugal are seen as the biggest beneficiaries of ECB bond-buying.

The government debts of all three countries have been strong performers since the ECB extended stimulus until at least September 2018 in its October meeting.

But minutes of the meeting released on Thursday showed that while ratesetters broadly agreed on extending their asset purchase scheme, the decision to keep the bond buys open-ended generated fiercer debate.

On Thursday, the gap between Italian and German 10-year government bond yields widened to 143 basis points, 3 bps wider than in early trades and 7 bps off the tightest levels this month.

Also this week, Benoit Coeure, the ECB director in charge of market operations, told a German newspaper he expected the ECB to drop by next September a pledge to continue buying bonds until inflation heads towards its target.

That was followed on Wednesday by a source-based story from Reuters that said rate-setters hope to put off debate on new moves until well into next year.

“What has materialised this week is how the debate is going to change in the future,” said Peter Chatwell, head of euro rates strategy at Mizuho.

In addition, surveys covering the services and manufacturing industries in the euro zone outshone even the most optimistic forecasters in Reuters polls - indicating growth is broad-based - with factories having the second-best month in the index’s history.

Strong economic performance generally suggests that ratesetters will have more justification to tighten monetary policy.

“Domestic price pressures are on the rise, which should eventually translate into further upward pressures on underlying inflation,” analysts at BNP Paribas said in a note.

The ECB’s key target is to push inflation in the bloc up to just below 2 percent.

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 Dhara Ranasinghe; Editing by Andrew Roche

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