Eurozone bond selloff comes to a halt as Fed plays down tapping talks
* Yields on government bonds from the periphery of the euro area tmsnrt.rs/2ii2Bqr
LONDON, April 29 (Reuters) – Eurozone government bond yields were pegged below two-month highs on Thursday after U.S. policymakers suggested holding on the stimulus taps for the time being even in the face of a growing economy and rising inflation.
The possibility of a “tapering” of bond purchases from the world’s most powerful central bank had triggered a massive sell-off of the world’s main government bonds – including in the eurozone – in recent weeks and especially on Wednesday .
But investors received some assurance from Fed Chairman Jerome Powell after a rate meeting concluded on Wednesday that the US Federal Reserve would not imminently reduce its support for the US economic recovery. .
“Powell maintained a strongly accommodating tone despite an improved outlook on the economy, reiterating the transient nature of inflation to come, focusing on the remarkable progress in the labor market and pushing back any mention of a downturn,” said the Mizuho analysts in a note. .
Yields on high-quality eurozone bonds were a bit higher on Thursday, but still below Wednesday’s highs. The yield on German 10-year bonds, the benchmark of the block, rose half a basis point to -0.228%, after climbing to -0.203% in the previous session.
Mizuho believes that benchmark bond yield could be pushed back to -0.15% in the second quarter.
The closely watched Italy-Germany 10-year bond spread narrowed to 105 basis points, inside this week’s high of 108.2 bps.
Italy is seen as one of the main beneficiaries of the central bank’s largesse, given its high debt levels and relatively low credit rating. Although the country’s bonds have benefited greatly from closer European integration, they remain sensitive to tightening monetary policy.
Inflation data from a number of eurozone states is expected this week and could put further upward pressure on yields if the numbers turn out to be higher than expected.
German inflation data for April is due Thursday at 12:00 GMT, preceded by similar data from a number of German states that could impact yields.
A Reuters poll suggested that consumer prices would have risen 2% from the previous year in Europe’s largest economy. An upside surprise would likely push yields higher, analysts said.
Other countries are also expected to release inflation data, while a comprehensive euro area issue is expected to be released on Friday. (Report by Abhinav Ramnarayan editing by Gareth Jones)