Tepid in­fla­tion cuts bond yields

The Star Early Edition - - INTERNATIONAL -

EU­RO­ZONE govern­ment bond yields fell yes­ter­day, as tepid in­fla­tion num­bers lifted ex­pec­ta­tions of a cau­tious stance at this week’s Euro­pean Cen­tral Bank (ECB) meet­ing. The ECB meets on Thurs­day, three weeks af­ter com­ments from cen­tral bank chief Mario Draghi that were seen as open­ing the door to pol­icy tweaks in the com­ing months trig­gered a jump in bond yields and the euro. While bor­row­ing costs re­main at el­e­vated lev­els, weak US data and sub­dued euro zone in­fla­tion have pro­vided some com­fort to bond mar­kets, on edge that an era of ul­tra-loose mon­e­tary pol­icy is draw­ing to a close. Data yes­ter­day con­firmed that con­sumer prices in the euro zone rose 1.3 per­cent year-on-year in June, in line with mar­ket ex­pec­ta­tions and de­cel­er­at­ing from 1.4 per­cent in May. The core mea­sure, which strips out un­pro­cessed food and en­ergy, edged up to 1.2 per­cent on the year. “The in­fla­tion data is feed­ing ex­pec­ta­tions that Draghi will use Thurs­day’s press con­fer­ence to set the tone right about the pol­icy out­look,” said DZ Bank rates strate­gist Daniel Lenz. Bond yields across the bloc fell 2 to 5 ba­sis points, led by pe­riph­eral debt mar­kets. Ger­many’s 10-year bond yield dipped 2 ba­sis points to 0.51 per­cent – down from 18-month highs hit a week ago at 0.58 per­cent, but roughly dou­ble the lev­els it traded at just be­fore Draghi’s speech. – Reuters

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