* Bonds rally across credit spectrum, led by peripherals
* Soft consumer data adds to view Fed to maintain stimulus
* Bund futures back near one-week high
By Emelia Sithole-Matarise and Ana Nicolaci da Costa
LONDON, June 14 Euro zone bonds rallied across
the board on Friday on a growing view that the U.S. Federal
Reserve will keep monetary policy accommodative to help the
economy at its meeting next week.
Weak U.S. industrial ouput and consumer sentiment data
supported the case for continued bank stimulus, allaying
markets' concerns the Fed was preparing for a quick exit from
its quantitative easing scheme.
Earlier, the Wall Street Journal said an adjustment in the
Fed's bond-buying programme did not mean the U.S. central bank
would end it "all at once" or that the Fed was "anywhere near
raising short-term interest rates".
"The market is looking ahead to the FOMC next week, possibly
thinking we could get a slightly more dovish tone out of the
Fed," ICAP strategist Philip Tyson said, adding there could be
another selloff if these expectations aren't met.
"It feels like there might be a little bit more calm now
going into Wednesday (when the Fed makes its decision). We've
had a big shakeout in positions so positioning shouldn't be an
aggravating factor for bonds going forward."
Friday's bond rally was led by riskier euro zone debt, with
Italian yields down 7 basis points at 4.29 percent
while Spanish equivalents earlier fell 10 bps to a day's low of
4.50 percent before retreating as traders prepared
for bond sales next week.
Prices of debt issued by bailed-out Portugal rose even more
sharply, with 10-year yields falling 21 bps to
6.33 percent. Yields on higher-rated euro zone debt also fell.
"It's just a bounce from a very aggressive (sell-off)," one
Financial markets have been choppy in recent weeks, with
trade dominated by views on the timing of a possible Fed exit
from ultra-loose monetary policy, making European assets more
sensitive than usual to U.S. data releases.
This week's figures have been mixed, with Friday's
industrial and consumer sentiment numbers missing forecasts,
while data on Thursday showed initial jobless claims fell last
week while retail sales rose more than expected in May.
Against the backdrop of mixed U.S. data, Commerzbank said in
a research note the Fed should remain on hold and confirm its
bond purchasing programme without any cuts next week.
German Bunds also rebounded. Bund futures rose 67
ticks to settle at 143.86, having hit their lowest since
mid-February earlier in the week at 142.02.