* Fed, ECB seen dovish but no promises expected
* Bund yields below 1 pct, other EZ yields also at historic
* Ukraine: Russian aid convoy crosses border without
By Marius Zaharia
LONDON, Aug 22 German Bund yields fell close to
their record lows below 1 percent on Friday, after Ukrainian
authorities said 90 trucks from a Russian aid convoy had crossed
the border without permission.
The latest development in the Ukraine crisis that has seen
Russia and the West imposing economically damaging sanctions on
each other prompted investors to seek refuge in top-rated
assets. Ukraine said will not use any force against the Russian
convoy, as it wishes to avoid provocations.
Also keeping Bund yields subdued was widespread expectation
that central bankers gathering for an annual conference in
Jackson Hole, Wyoming, would signal they are in no rush to
either tighten or loosen monetary policy.
Federal Reserve chief Janet Yellen is likely to reiterate a
view expressed last month that there is significant
under-utilisation of labour resources. Those comments prompted
markets to push back the timing of an interest rate hike.
"Our guess is that we won't get any particularly dramatic
insight from Yellen. Her views on the labour market are well
entrenched," said Chris Scicluna, head of economic research at
Daiwa Capital Markets.
German 10-year Bund yields were down 2.4 basis
points lower at 0.969 percent, within touching distance of a
record low of 0.952 percent.
European Central Bank President Mario Draghi is under
pressure to use his last remaining tool -- printing money -- to
tackle near-zero inflation and lift a stagnating economy, but he
is not expected to show any urgency in that regard.
The ECB cut all its interest rates in June and will offer up
to 1 trillion euros of cheap four-year loans to banks
(TLTROs)from September. Draghi has said he wants to see the
results of these measures before taking new steps.
"Slow growth ahead ... will keep hopes up that the ECB will
start a full-scale QE programme," said Suvi Kosonen, an analyst
at Nordea, referring to quantitative easing, the technical term
for central bank asset purchases.
"Draghi will most likely stay dovish, but we expect no
promises of new measures at this point with the TLTROs still
about to materialise. So no 'whatever it takes' 2.0 coming up
FLIPPING FRESH COINS
Other euro zone yields also held relatively steady around
historic lows. Spanish and Italian
yields were flat at 2.39 percent and 2.58 percent respectively.
Such low borrowing costs for countries which have a combined
debt of 3 trillion euros, are struggling to grow and have no
inflation raise questions about the sustainability of a
two-year-old rally sparked by Draghi's promise in 2012 to do
'whatever it takes' to save the euro.
Some observers such as the Bank for International
Settlements, which is known as the central bank of central
banks, see the rally as a potential bubble which might burst
once money gets more expensive, especially in the United States.
But a weak correlation between Spanish and Italian yields
with their U.S. counterparts is reassuring.
The ECB's stance also helps the euro zone bond market to
decouple from the one across the Atlantic.
"In essence, growth and inflation surprises would help
sovereign credit risk through supporting debt sustainability,
while the absence of growth and inflation will spur further ECB
accommodation," Societe Generale rate strategist Ciaran O'Hagan
said in a note.
"So heads, prices rise and tails, yields fall."
(Reporting by Marius Zaharia; Graphic by Monica Ulmanu; Editing
by Toby Chopra)