June 6, 2018 / 7:39 AM / 6 months ago

Euro zone bond yields, euro rise on ECB jitters

FILE PHOTO: European Central Bank (ECB) executive board member Peter Praet speaks during an interview with Reuters in Frankfurt, Germany, March 14, 2018. Picture taken March 14, 2018. REUTERS/Ralph Orlowski

LONDON (Reuters) - Borrowing costs across the euro area rose on Wednesday after the European Central Bank’s chief economist said the central bank will debate ending its bond purchases at next week’s meeting.

The ECB is increasingly confident that inflation is rising back to its target and will next week debate whether to gradually unwind bond purchases, ECB chief economist Peter Praet said.

Euro zone bond yields across the board rose after Praet's comments, while the euro touched a 10-day high against the U.S. dollar EUR=.

Germany’s benchmark 10-year bond yield rose back above 0.40 percent DE10YT=RR, and was last up 4 basis points on the day.

“We are likely to see ECB tapering of QE (quantitative easing) in the fourth quarter and I don’t see anything in Praet’s comments to change that view,” said Chris Scicluna, head of economic research at Daiwa Capital Markets.

“There has been a bit of reaction to Praet. But at the moment it’s difficult to disentangle market response to what’s going on in the BTP market,” he said, referring to Italian bonds which remained under pressure a day after Italy’s new prime minister pledged radical change.

Italy’s bond yields extended Tuesday rise after the new government there won the first of two confidence votes in parliament.

Analysts said the big spending plans of the new government were likely to keep pressure on Italian bond markets despite signs of a stabilization after last week’s rout.

In early trade, Italy’s 2-year bond yield was up 20 basis points at 1.18 percent IT10YT=RR

Reporting by Dhara Ranasinghe; Editing by Raissa Kasolowsky

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