LONDON Nov 26 Euro zone government bonds rose
on Tuesday, as investors looked for more insight into the rates
outlook from European Central Bank speakers after recent remarks
reinforced bets on further monetary easing.
ECB Executive Board members Yves Mersch and Joerg Asmussen
speak later. Inflation numbers on Friday will be key in moulding
expectations as the market prepares for the Dec. 5 monetary
"If we get a weak inflation number on Friday, we will see
the (easing) speculation move to another level ahead of the ECB
meeting the following week," Philip Tyson, strategist at ICAP
"But generally people are thinking it's a bit too early for
them to do anything right now. They will try to hang on, if they
can, until the first quarter of next year."
A surprise fall in annual inflation for October to 0.7
percent, well below its target of just under 2 percent, prompted
the ECB to cut rates this month. Inflation data for November is
due on Friday and is forecast at 0.8 percent, according to a
German Bund futures were up 21 ticks at 141.53,
pushing ten-year German yields 1.8 basis points
lower to 1.71 percent. Other highly-rated euro zone bond yields
were down between 1-2 basis points.
Ten-year Italian yields also fell 3.1 basis
points to 4.07 percent on solid demand at a bond sale.
Italy's two-year yields fell to a seven-month low of 1.16
percent at an auction of zero-coupon debt as reduced funding
needs and the euro zone's ultra-easy monetary policy fed demand
for its short-term debt.
"The ECB is providing a backstop, the short end remains
pretty well underpinned," Nick Stamenkovic, bond strategist at
RIA Capital Markets said before the auction.
"The underlying backdrop for peripherals is favourable but
ahead of the supply on Thursday, investors might demand a bit of
a concession." Italy will offer up to 2.5 billion euros of bonds
maturing in 2024 on Thursday.
Also key will be the ECB's staff projections to be published
at next week's policy meeting, analysts said.
"All will depend on the outcome of the forecast for
inflation. If inflation for next year will be 1 percent or
above, this should be neutral," Piet Lammens, strategist at KBC
"If the inflation forecast for next year were below 1
percent, then we think the market (will be reminded of) all this
dovish talk and will think the ECB is closer to another easing
of policy and this might still help the overall Bund market."
ECB Governing Council member Christian Noyer said on Monday
interest rates had to remain low for an extended period and
might go even lower if needed, while his colleague Ardo Hansson
was quoted as saying the ECB still has room to cut rates.
Earlier, ECB Executive Board member Benoit Coeure told TV
station CNBC that negative deposit rates were a possibility but
that he did not see a "very likely prospect" that disinflation
would deepen in the euro zone.
"It's what one might call an alternative OMT (ECB
bond-buying) gambit. You put something out there and say 'we can
do all of this but it probably won't be necessary'," Marc
Ostwald, strategist, at Monument Securities said.