* Lower-rated euro zone yields bounce off multi-year lows
* ECB policymakers talk down imminent QE
* Markets still expect stimulus measures from ECB
* Greek yields around 4-year lows despite Moody's inaction
(Updates prices, adds fresh comment)
By Emelia Sithole-Matarise and Marius Zaharia
LONDON, April 7 Lower-rated euro zone bond
yields rose from multi-year lows on Monday after European
Central Bank policymakers tempered market exuberance over
potential asset purchases by the bank.
ECB policymaker Ewald Nowotny said there was no immediate
need for the bank to take steps to counter stubbornly low
inflation because a strengthening of Europe's economy should
reduce the danger of deflation.
His colleague Yves Mersch said the bank was drawing up plans
for large-scale asset purchases or quantitative easing (QE) in
case they were needed, but there was some way to go before that
Bundesbank Chief Jens Weidmann made no mention in his speech
of QE, but stressed the ECB should not be overburdened, while
ECB Vice President Vitor Constancio said extraordinary policy
measures "should not be decided lightly".
The remarks prompted some investors to take profits in
lower-rated bond markets following their sharp outperformance
last week after ECB President Mario Draghi signalled the bank
could print new money if inflation remained persistently low.
Spanish 10-year yields rose 3 basis points to
3.19 percent, with some traders citing domestic and Asian
investor selling after a relentless rally this year which pushed
the yields to 8-1/2-year lows.
Other low-rated euro zone bond yields were 2-3 bps higher.
"At the moment, it seems they are not fully on board with it
(QE) yet," said David Keeble, global head of fixed income
strategy at Credit Agricole in New York. "They are looking at it
but it doesn't seem that it's about to happen."
Many in the market see these moves as a temporary setback,
with the ECB still expected to ease monetary policy later this
year, supporting investors' hunt for higher returns in
peripheral euro zone bonds.
"The market is keen to speculate on QE," said Michael
Leister, a strategist at Commerzbank. "We can easily see yields
testing the lows again."
Many in the bond market took a German newspaper report on
Friday that the ECB had modelled the effects of buying a
trillion euros of assets to ward off deflation as adding to the
likelihood of QE from the bank.
The Frankfurter Allgemeine Zeitung report, however, said one
model showed 1 trillion euros of asset purchases spread over a
year would boost inflation by just 0.2 percentage points, while
another pointed to a 0.8 percentage point uplift.
GREECE IN NO RUSH TO MARKET
Greek 10-year yields were also slightly up,
having hit new four-year lows earlier as investors shrugged off
the lack of a statement from Moody's on Friday, when it had been
widely expected to give an update of the country's credit
ratings. Under new EU rules, rating agencies are required to lay
out the dates on which they review a country's creditworthiness.
Some market participants had expected Moody's to lift
Greece's ratings by as much as two notches from Caa3, which is
nine notches below investment grade. Standard & Poor's and Fitch
rank Greece six notches below investment grade at B-.
Demand for the country's debt remained intact as investors
looked in coming months to Greece's return to the market, two
years after it defaulted.
Greece has lined up a group of banks for the five-year bond
issue, prompting speculation a sale could come as soon as this
week, but Finance Minister Yannis Stourmaras said there was no
rush, reiterating that a sale would happen in the first half of
Greek 10-year yields were 2 bps higher on the
day at 6.17 percent, having fallen fallen as much as 50 basis
points over the past week.
"The Greek government bond market is doing well and
investors are just looking for yield pick-up with the ECB's
accommodative stance at this juncture," said RIA Capital Market
strategist Nick Stamenkovic.
(Editing by Andrew Roche)