Euro zone yields rise, focus on inflation data, ECB speakers

MILAN, June 27 (Reuters) - Euro zone yields rose on Monday with inflation concerns putting downside pressure on government bond prices as some analysts expect record high consumer price data later this week.

Investors will focus on energy news on Monday after Germany entered Phase 2 of its three-stage emergency gas plan last week due to reduced supply from Russia.

European Union countries will discuss options to curb gas demand as the bloc prepares for possible further supply shocks, EU energy commissioner Kadri Simson said on her arrival at a meeting of energy ministers in Luxembourg.

Germany’s 10-year government bond yield, the benchmark of the bloc, rose 3.5 basis points (bps) to 1.473%.

“A likely new record of inflation at 8.4% degrades the latest ECB projections which foresaw a decline in inflation,” Commerzbank said in a research note.

Analysts have mixed views about the future path of bond yields. While the ECB seeks to tackle high inflation, it also faces the growing risk of economic recession.

“The balance of risk is for the recent highs of 3.48% and 1.77% for 10Y Treasuries and Bund yields respectively not to be revisited any time soon, as falling inflation swaps suggest expectations are increasingly under control,” ING analysts said.

“The ECB has yet to embark on its tightening programme and should crank up the hawkish pressure at its Sintra forum this week,” they added.

Several European Central Bank policymakers, including President Christine Lagarde, will speak at the ECB Forum on Central Banking in Sintra, Portugal, starting late on Monday.

Analysts argued recently that current levels of interest rates are consistent with recession fears coupled with a ‘whatever it takes’ approach to tame inflation.

However, “if central bankers reiterate fears that monetary policy might become too tight due to inflation-fighting and will sharply increase the risk of a recession, longer-term nominal yields might see a repetition of the positive performance from last week,” Unicredit analysts said.

Italy’s 10-year government bond yield rose 1.5 bps to 3.574%, with the spread between Italian and German 10-year yields flat at 210 bps. (Reporting by Stefano Rebaudo, editing by Susan Fenton)