March 11, 2019 / 12:11 PM / 7 months ago

UPDATE 2-German yields near lows as weak industrial data underlines ECB caution

* Germany industrial production data falls unexpectedly

* German 10-year yields dip to 0.055 pct

* Fed Chair Powell says there’s no hurry on hikes

* Upcoming Brexit votes a crucial driver for bonds

* Euro zone periphery govt bond yields tmsnrt.rs/2ii2Bqr (Adds move in Portuguese yields to new low, updates prices)

By Abhinav Ramnarayan

LONDON, March 11 (Reuters) - Euro zone bond yields dipped on Monday after German industrial production fell in January, adding weight to market bets on a slowing European economy and the European Central Bank’s dovish policy stance.

Industrial output data showed that Europe’s largest economy is still suffering from trade frictions and unease about Brexit after narrowly avoiding recession last year.

“We have had a lot of sentiment indicators pointing to this, but industrial production is hard data and it is really cementing the impression that the European economy is slowing down,” Mizuho rates strategist Antoine Bouvet said.

“It is lending credibility to the view that the slowdown is not temporary, and the ECB’s decisions last week amounted basically to preventative action.”

Germany’s 10-year bond yield, the benchmark for the region, slipped 1.5 basis points to 0.06 percent.

It hit a 26-month low of 0.048 percent on Friday, a day after the ECB pushed out the timing of its first post-crisis rate hike and offered banks a new round of cheap loans to help revive the euro zone economy.

Other euro zone yields were also lower on the day, with Belgian 10-year yields a shade away from a one-year low at 0.54 percent.

“With hindsight, the latest batch of disappointing industrial data explains why Bundesbank President Jens Weidmann supported last week’s decisions by the ECB. The German economy could currently use some monetary tailwinds,” said Carsten Brzeski, an economist at ING.

The cautious stance by European policymakers was echoed across the Atlantic over the weekend, with U.S. Federal Reserve chair Jerome Powell saying the central bank does “not feel any hurry” to change the level of interest rates again.

Data on Friday showed that February job growth in the United States was its weakest in nearly 1-1/2 years.

Uncertainty about Brexit also pinned yields lower, with two major eurosceptic factions in the British parliament warning that Prime Minister Theresa May was facing a heavy defeat when she puts her exit deal to a vote.

Weaker sentiment was best portrayed in the euro zone by Italian bond yields, which rose firmly off last week’s lows and were 5-7 basis points up across the curve, with the 10-year yield higher 5 bps at 2.56 percent.

But Portuguese 10-year bond yields fell over 4 bps to 1.311 percent, extending recent falls to its lowest in at least 25 years.

Rabobank rates strategist Lyn Graham-Taylor said speculation that Portugal’s rating may be upgraded this Friday when it is reviewed by S&P Global helps explain the outperformance of Portuguese debt.

S&P rates Portugal BBB- with a positive outlook. (Reporting by Abhinav Ramnarayan; Additional reporting by Dhara Ranasinghe; Editing by Alison Williams)

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