Euro zone bonds rise on Fed's Yellen's comments

Thu Nov 14, 2013 3:56am EST

Related Topics

* Chairman-designate's remarks suggest Fed in no hurry to taper

* French GDP data disappoints, German growth slows

* Data reinforces case for accommodative ECB stance

By Ana Nicolaci da Costa

LONDON, Nov 14 (Reuters) - Euro zone bonds rose on Thursday after comments by Federal Reserve governor-designate Janet Yellen suggested she was in no hurry to scale back monetary stimulus.

Yellen, in remarks released ahead of her Senate confirmation hearing, said the U.S. central bank has "more work to do" to help an economy and labour market that are still underperforming.

A stronger-than-expected U.S. payrolls number last week prompted market participants to bring forward the expected timing of Fed tapering of its asset purchase programme.

A sensitive topic for markets, the global monetary policy landscape has been hard to gauge despite central banks' efforts to give forward guidance.

"We have the headlines from Yellen, from the U.S., we have an ECB which is talking about possibly further stimulus ... so all of this is supportive," Rainer Guntermann, strategist at Commerzbank said. "The technical call would be for longs (buyers) in the Bund future."

German bond futures were up 16 ticks on the day at 141.49, having rallied in the previous session after dovish comments from ECB Executive Board member Peter Praet.

Euro zone bonds rose across the credit spectrum, with ten-year Spanish yields down 1.6 basis points at 4.09 percent and Italian yields 2.4 bps lower at 4.10 percent.

Praet told the Wall Street Journal the ECB could adopt negative interest rates or buy assets from banks if needed to lift inflation closer to its target.

The ECB surprised markets last week with a interest rate cut and reiterated its accommodative monetary policy stance.

Data on Thursday reinforced the idea that the euro zone economy needs further support, showing France's recovery fizzled out in the third quarter and German growth slowed.

The euro zone as a whole emerged from recession in the second quarter and figures due at 1000 GMT are forecast to show further tepid growth, of 0.2 percent.

"The euro area recovery is very fragile and that will reinforce markets expectations that the ECB will maintain its accommodative stance for some time," Nick Stamenkovic, bond strategist at RIA Capital Markets.

"But I think for them to ease further and to put the deposit rate into negative territory, you either need to see a complete reversal of the positive (trend) you have seen in the PMIs and/or a building of deflation pressures in the euro zone as a whole."

Surveys last week showed the pace of the recovery in euro zone private sector business eased slightly last month, but by less than originally estimated, while the data still showed an expansion in activity.

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