Euro zone bond yields fall after Powell testimony
By Stefano Rebaudo
MILAN, July 15 (Reuters) - Euro zone government bond yields fell on Thursday after testimony from Federal Reserve chairman Jerome Powell soothed fears of an earlier than expected tapering of monetary stimulus.
Powell on Wednesday pledged "powerful support" to complete the U.S. economic recovery from the coronavirus pandemic and said he is confident recent price rises are associated with the country's post-pandemic reopening and will fade.
U.S. Treasury yields extended their losses with the 10-year borrowing costs down 4 basis points in London trade after falling 6 bps on Wednesday.
Germany´s 10-year government bond yield fell 2.5 basis points to -0.34%.
"Powell reassured the markets, and there is no doubt he will continue with its dovish approach until the Fed decides of tapering its monetary stimulus," Mauro Valle, head of fixed income at Generali Investments Partners, said.
"We expect the Bund to stay in the range of the last few weeks as the economic scenario is unlikely to change shortly," he added. "German government bond prices will probably follow their seasonal pattern rising a bit if there is an increase of volatility."
"Thanks to a further improvement in economic data, real yields are likely to rebound from these levels throughout the remainder of the year," according to Unicredit analysts.
The ECB reiterated its dovish stance as the Italian policymaker Ignazio Visco said the central bank would not tighten its ultra-easy stimulus policy for a long time to support economic recovery in the bloc.
But Bank of England interest rate-setter Michael Saunders said the BoE might need to withdraw some of its massive stimulus programmes "fairly soon".
Italy´s 10-year government bond yield was flat at 0.715%, after falling to 0.7%, its lowest since April 12.
France's 10-year OAT yield was down 1.5 basis points at 0.005% after dropping into negative territory for the first time since April 27, at -0.005%.
In the U.S., "while real yields are leading the charge, it is noteworthy that dollar break-evens are also edging lower again," Commerzbank analysts told clients.
"The market thus sides with the central bank narrative of transitory inflation, focusing on the decline from next year's base effects," they added.
Investors will focus on U.S. data after numbers from China showed its economy grew slightly more slowly than expected in the second quarter while expectations build that policymakers may have to do more to support the recovery.
"The Chinese growth data remained relatively resilient, which could support the 'liquidity on' reflation sentiment," according to Commerzbank. "This should be put to the test with several macro indicators lining up in the U.S."
France sold February 2024 OAT at an average yield of -0.63% , while Spain sold 2031 bonds at a borrowing cost of 0.354%.
(Reporting by Stefano Rebaudo; Editing by Hugh Lawson)
