* ECB policymakers' dovish comments underpin bonds
* Euro zone yields dip but tipped to stay off year's lows
* Bunds end volatile second quarter lower
By Emelia Sithole-Matarise and Ana Nicolaci da Costa
LONDON, June 28 Lower-rated euro zone bonds rose
on Friday and more gains are seen next week on expectations that
the European Central Bank will give further reassurance that its
policy will stay ultra-easy for the foreseeable future.
Euro zone bonds across the credit spectrum have clawed back
some of their losses this week after central bankers sought to
calm concerns about reduced monetary stimulus in the wake of the
U.S. Federal Reserve's plans to curtail its bond purchases.
Trade continued to be driven by expectations of when the
Fed may begin winding back quantitative easing this year and
against that backdrop, German Bunds posted a second straight
month of losses.
Investors snapped up some peripheral euro zone paper,
however, after the ECB said an exit from its exceptional
monetary policy measures remained distant.
Euro zone bonds are now stabilising with policymakers seen
maintaining their dovish tone at their meeting next Thursday but
analysts said they did not expect yields to fall back to this
"The ECB is in the camp where potentially they will be
disappointed by the upcoming data and it could well be the ECB
leaves the door open to do a little bit more on monetary
policy," Commerzbank strategist David Schnautz said.
"Despite what some of his colleagues have been saying Draghi
could be on the dovish side and be reassuring that the exit is
nowhere near and this should help peripherals to continue
finding firmer ground."
Ten-year Italian government bond yields fell 3
basis points to 4.55 percent while equivalent Spanish yields
were 2 bps lower at 4.73 percent.
Analysts expected peripheral euro zone yields to have only
limited room to ease further now that the idea of tapering was
in the market and that volatility was expected to persist.
"The potential for a rally in the peripheral space is now
more limited," said Patrick Jacq, European rate strategist at
"Liquidity and credit risk assessment has changed since the
Fed spoke about tapering off... In the risk-reward environment,
it will require higher yield than in the past because volatility
German Bunds fell 6 ticks to settle at 141.52,
reversing earlier gains in volatile trading exacerbated by
month- and quarter-end activity. Cash 10-year yields
were slightly up at 1.74 percent, having retreated
over the past few sessions from a 14-month peak of 1.85 percent
hit on Monday.