Euro zone bond yields tick up as ECB slows bond buying

03/08/2021 | 06:33am

* Euro zone periphery govt bond yields

LONDON, March 8 (Reuters) - Euro zone bond yields ticked up on Monday amid upward pressure from rising U.S. borrowing costs and as data showed the European Central Bank slowed the pace of weekly bond purchases ahead of a meeting on Thursday.

Expectations had been for the central bank to step up the pace of bond buying in its pandemic emergency purchase programme (PEPP) to contain rising bond yields.

It emerged however that it bought only 11.9 billion euros worth of bonds, slightly less than in the previous week.

Analysts at UniCredit had said PEPP purchases of less than 17 billion euros would disappoint investors while Pictet had set the bar at 20 billion euros.

An ECB spokesman said the net purchases were affected by "seasonality factors", particularly large redemptions, which "temporarily delayed" an increase in the ECB's bond pile.

Germany's benchmark Bund yield was last up 3 basis point at -0.275%, holding below almost one-year highs around -0.20% from late February.

Other 10-year bond yields were also slightly higher in the euro zone, such as France's rising 2 basis points, while U.S. 10-year Treasury yields rose around 4 basis points.

Morgan Stanley analysts estimate there is about 30 billion euros per month headroom for faster purchases within the current PEPP envelope, even if buying holds at a steady rate.

Because the rise in euro area bond yields has been driven by the United States, where a $1.9 trillion fiscal package has lifted growth and inflation expectations, the ECB could justify a push back against market moves.

If left unchecked, rising sovereign borrowing costs could spill over to corporations and households and hurt an economy still grappling with the coronavirus.

Policymakers from ECB President Christine Lagarde to chief economist Philip Lane have expressed unease. Markets want to know the game plan.

"A failure to react after the verbal intervention of the past few weeks would be understood as a sign that the rise in yields is warranted by economic conditions," ING analysts said in a note. "It would leave bonds free to sell off further."

Separately and according to Refinitiv capital markets news service IFR, the EU said it hired a syndicate of banks for a 15-year bond sale due in the near future, which typically indicates a sale will happen the following day.

Brent crude oil, meanwhile, briefly climbed above $70 a barrel for the first time since the COVID-19 pandemic began, following reports of attacks on Saudi Arabian facilities.

Rising oil prices tend to move closely with inflation expectations in the euro area.

A key market gauge of long-term inflation expectations was at 1.43%, hovering near its highest levels since early 2019.

(Reporting by Dhara Ranasinghe and Julien Ponthus, editing by Larry King and David Evans)

© Reuters 2021
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