* ECB seen paving way this week for more easing
* Italy, Spain yields hold steady
* Greek yields slip on report of potential new bailout
By Emelia Sithole-Matarise
LONDON, Feb 3 (Reuters) – German 10-year bond yields hovered
around six-month lows on Monday on increased expectation that
low inflation will lead the European Central Bank to ease policy
further in the coming months.
While final reports on euro zone manufacturing activity
largely confirmed a recovery in the bloc’s major economies,
investors’ focus was on the next ECB policy move after data last
week showed inflation fell to 0.7 percent in January, well below
the bank’s target of nearly 2 percent.
This drove euro zone government bond yields, except Greek
ones, sharply down on increased speculation that the ECB would
cut interest rates further later this year.
Many in the market expect the bank to hold fire at its
meeting on Thursday but signal its readiness to take
accommodative measures in coming months.
“The market is positioned for a dovish message from the ECB
on Thursday but we think it’s a bit early for them to move on
Thursday given the comments we’ve heard from some members of the
governing council.”
German 10-year yields were slightly up at 1.57 percent
, near a low of 1.555 percent hit on Friday. The
rally in German Bunds also cooled as some stability returned to
emerging markets where activity was subdued with China on
holiday to mark the Lunar Year.
“Data releases should confirm that the economic outlook is
continuing to brighten across the European Union and the United
States, but this will likely not be enough to lead to a
bond-unfriendly move on core curves,” UniCredit strategists said
in a note.
Elsewhere in the market, fell 6 basis points to 8.64 percent
as some stability returned to emerging markets and
after a press report that Germany was preparing the ground for a
third bailout for Athens ahead of European elections in May.
Greece – whose debt markets are heavily influenced by
investors exposed mainly to emerging markets – saw its 10-year
bond yields hit their highest this year on the sell-off in
emerging markets.
Spanish and Italian yields were stable at 3.68
and 3.78 percent respectively.
