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Global policy tilt tempers easy feeling in euro zone bond markets
November 2, 2017 / 8:52 AM / 16 days ago

Global policy tilt tempers easy feeling in euro zone bond markets

* BoE set for first rate hike in 10 years

* Fed stays on course for December hike

* France, Spain auction bonds

* Greek yields fall on debt swap expectations

By John Geddie

LONDON, Nov 2 (Reuters) - Euro zone government bond yields crept up on Thursday as the Bank of England prepared to raise interest rates for the first time in a decade and the U.S. Federal Reserve stayed on course for a hike at the end of the year.

Debt auctions from Spain and France also added to the slight upward pressure on the bloc’s yields, many of which fell to multi-month lows after the European Central Bank extended its monetary stimulus programme last week.

The ECB’s easing bias contrasted with the U.S. Federal Reserve, which on Wednesday pointed to solid economic growth and a strengthening labour market, in a sign that it is on track to lift interest rates in December.

Investors are expecting the Bank of England to announce a hike of its own at 1200GMT, its first since 2007, but have reason to be nervous as economic growth is weaker than before any other increase in borrowing costs in the past 20 years.

“With the Fed keeping the course for a hike in December as widely expected today’s BoE meeting keeps the focus on the global policy outlook,” Commerzbank rates strategist Michael Leister said.

“A 25bp hike is almost fully discounted given the run of resilient macro data since the last meeting, leaving the focus on the subsequent rate path.”

A full 70 percent of economists polled by Reuters believe even the modest 25 basis point (bp) rise would be a mistake, given underlying weaknesses in the economy and the political uncertainties surrounding Britain’s planned exit from the EU.

Debt sales were also playing their part in market movements as yields tend to rise ahead of debt sales as investors make room in the portfolios for new supply.

France on Thursday will sell 7.5 to 8.5 billion euros of bonds maturing in May 2028, May 2031, and May 2048, while Spain will sell bonds due in October 2022, October 2027 and July 2040 and one inflation-linked bond due in November 2027.

Also on Thursday, President Donald Trump is expected to nominate Jerome Powell as the next head of the Federal Reserve, putting his own stamp on the leadership of the U.S. central bank while signalling continuity on monetary policy.

German 10-year yields - the bloc’s benchmark - rose 2 basis point to 0.39 percent. Italian equivalents - which have seen some of the biggest falls since last week’s ECB meeting - rose 1 bps to 1.81 percent and edged away from an 11-month low of 1.79 percent struck Wednesday

Greek bond yields bucked the trend, with yields edging lower as investors expected the country to soon launch a mammoth debt management exercise.

The yield on Greece’s bond maturing in 2042 has fallen below 6 percent for the first time in 3-1/2-years, according to Tradeweb data.

For Reuters Live Markets blog on European and UK stock markets see reuters://realtime/verb=Open/url=http://emea1.apps.cp.extranet.thomsonreuters.biz/cms/?pageId=livemarkets

Reporting by John Geddie; Editing by Gareth Jones

Our Standards:The Thomson Reuters Trust Principles.
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