Euro zone bond yields steady near seven-week highs

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LONDON — Euro zone sovereign bond yields hovered near seven-week highs on Monday, steadying after a sharp rise at the end of last week as latest U.S. jobs data provided fresh evidence of brewing price pressures.

The bloc’s bond markets were on alert for any possible shift by the European Central Bank this week towards dialing back massive emergency stimulus following a deluge of hawkish comments and strong inflation data last week.

Friday’s U.S. jobs data added to the selling pressure in bond markets after revealing a sharp increase in wages and a fall in the unemployment rate although the number of new jobs created in August was less than expected.

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But with U.S. markets closed on Monday for a holiday and Thursday’s ECB meeting looming, bond yields across the common currency bloc were little changed. Germany’s benchmark 10-year Bund yield was steady at -0.36%. , holding near a seven-week high touched on Friday at around -0.35%.

Its 30-year Bund yield was at around 0.14% and also near highs hit on Friday.

ECB chief economist Philip Lane has said it is too early for the ECB to lay out plans to wind down the 1.85 trillion euro ($2.2 trillion) Pandemic Emergency Purchase Programme (PEPP).

But the ECB is on Thursday expected to set the pace of PEPP buying for the fourth quarter, a decision that could take on greater significance given the taper talk.

“If the only decision we expect the ECB to take is on the pace of the next quarter’s worth of PEPP purchases, a spike in inflation and recent hawkish comments have raised the stakes,” said ING senior rates strategist Antoine Bouvet.

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He added that this now put the focus on the ECB’s latest economic forecasts, due out on Thursday.

Most other long-dated euro zone bond yields were little moved.

German industrial orders unexpectedly surged in July, official figures showed on Monday, hitting a post-reunification high and pointing to a solid start to the second half in the engine room of Europe’s largest economy.

“The ECB will have to articulate a more constructive economic outlook without giving the impression that a tighter policy stance is on its way, especially as the new strategy was just translated into a new, more dovish guidance,” Pictet Wealth Management strategist Frederik Ducrozet said in a note.

News on Friday meanwhile that S&P has upgraded its outlook for Cyprus to positive from stable, and affirmed its BBB- rating, had little immediate impact on bond markets.

(Reporting by Dhara Ranasinghe Editing by Gareth Jones and Alexander Smith)