Bonds News

Euro zone bond yields dip, focus on bloc's inflation reading

* Euro zone periphery govt bond yields

AMSTERDAM, Sept 1 (Reuters) - Safe-haven German bond yields continued to dip from their recent highs in early trade on Tuesday, with the focus on the euro zone inflation reading for August.

The data due out at 0900 GMT is expected to show inflation decline to just 0.2%, although it could even dip into negative territory, according to a Reuters poll. It follows Germany’s reading on Monday showing consumer prices falling for the first time in more than four years, which evoked little market reaction.

European inflation readings are in the spotlight this week after the U.S. Federal Reserve announced last week that it would start to target an average of 2% inflation over a period of time rather than using the figure as a hard annual target. That has steepened yield curves on both sides of the Atlantic.

“Investor focus on break-evens is likely to remain high in light of the ongoing discussion on whether the recent Fed move to average inflation targeting will put pressure on other central banks to follow,” UniCredit Analysts told clients.

“In this respect, note that break-even inflation in the eurozone has risen comparatively less than it has in the US.”

A key market gauge of long-term euro zone inflation expectations is currently at around 1.24%, near the highest since the start of the coronavirus crisis in Europe. .

Germany’s 10-year bond yield was down 1 basis point to -0.41%, trailing down from its highest since early June hit last week following the Fed’s announcement.

In the primary market, Germany is scheduled to sell 600 million euros of inflation-linked bonds due 2026 and 2046 in an auction, while analysts expect it could follow with an announcement of the start of its debut green bond as early as today.

Italian bond yields briefly rose to their highest in six weeks at around 1.17% in early trade, but were last down 3 basis points on the day to 1.13%.

Comments from European Central Bank bond member Isabel Schnabel that it has no reason for now to add to its stimulus measures had put pressure on Southern European bonds in the previous session.

Reporting by Yoruk Bahceli, Editing by William Maclean