February 7, 2018 / 8:40 AM / 8 months ago

Euro zone bond selling resumes cautiously, policymaker speeches eyed

* Stock market steadies, bond yields edge higher

* Fed, ECB speeches eyed for response to stock slump

* Euro zone periphery govt bond yields tmsnrt.rs/2ii2Bqr

By Abhinav Ramnarayan

LONDON, Feb 7 (Reuters) - Euro zone government bond yields pulled back from Tuesday’s lows as markets steadied overnight, though investors will be keeping sharp lookout for any policymaker responses on Wednesday to the sharp sell off in stock markets.

A string of ratesetters from the United States and Europe are scheduled to speak on Wednesday, and investors will be watching closely for any response to the stock market sell-off on Tuesday that pushed bond yields sharply lower.

“We may see some comments from officials today on the market volatility, investors will be watching for how they will treat this - I would be surprised if they take it too lightly,” said ING strategist Benjamin Schroeder.

The European Central Bank’s Daniele Nouy and Sabine Lautenschlager are set to hold a news conference on Wednesday morning while the U.S. Federal Reserve’s Robert Kaplan, William Dudley and Charles Evans are all due to speak later in the day.

“But in the meanwhile it looks like we are in a risk on/risk off type of market,” Schroeder added, using a phrase that describes the phenomenon of “safe” bond prices rising when “risky” stocks fall and vice versa.

Ahead of those speeches, yields across the euro zone are flat to a touch higher, and have moved away from Tuesday’s lows in a resumption of the trend of recent weeks.

The yield on Germany’s 10-year government bond, the benchmark for the region, rose a basis point to 0.70 percent, having plunged to 0.66 percent on Tuesday. DE10YT-RR

The yield on this bond has more than doubled since early December as the ECB cut bond purchases by half at the start of the year and is expected to end the programme in its entirety soon after it runs out in September.

Other euro zone bond yields were flat to a touch higher on the day, though bonds from lower-rated Italy, Spain and Portugal edged lower on the day.

And yet, Tuesday’s stock market crash was a reminder that there is still demand for Europe’s best-rated and most liquid asset, and for other well-rated government bonds in the continent.

This will tested later as Germany is set to sell bonds maturing in August 2028 in an auction.

“We are sticking to our forecasts for now, there are still some risk events up ahead: the U.S. government shutdown and the Italian election,” said Schroeder of ING. ING expects German 10-year bond yields to be at 0.85 percent by the end of 2018.

The U.S. House of Representatives on Tuesday approved another stopgap bill to keep the federal government from shutting down, hours after President Donald Trump said he would “love” to see a shutdown if immigration legislation were not included. (Reporting by Abhinav Ramnarayan; Editing by Alison Williams)

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