UPDATE 1-Euro zone bond yields near one-month highs eyeing U.S. data, Powell

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Aug 27 (Reuters) – Euro zone bond yields hovered near one-month highs on Friday as markets calmed ahead of U.S. inflation data and a speech by the Fed chief, but the yields were set for their biggest weekly jumps in at least 2 months following a sell-off earlier this week.

Bonds were braced for a second session of calm after seeing their worst daily performance in six months on Wednesday, when benchmark 10-year yields jumped 6-10 bps to one-month highs.

Analysts attributed this partly to caution ahead of Federal Reserve Chairman Jerome Powell’s speech at the Jackson Hole symposium. Euro area bond yields are closely correlated to moves in U.S. Treasuries.

Bond yields move inversely with prices.

On Friday, by 0926 GMT, Germany’s 10-year yield, the benchmark for the euro area, was unchanged at -0.41%, just below Thursday’s one-month high at -0.401%.

Italy’s 10-year yield was down 1 basis point to 0.66%, keeping the closely watched gap to German 10-year yields at 106 bps, below this week’s 109 bps peak, the highest in over a month.

Though markets calmed on Friday, the sell-off earlier in the week set up Germany’s 10-year yield for its biggest weekly jump since early May, up 8 bps this week, while Italy’s 10-year yield was set for its biggest weekly jump since mid-June, 11 bps this week.

The July core personal consumption expenditure figure due at 1230 GMT is expected to show a 0.3% increase month-on-month, in line with July inflation data released earlier in August.

Powell’s speech follows at 1400 GMT and will be watched for any signs of when the Fed might start slowing its bond purchases as the first step in scaling back its pandemic stimulus, though analysts expect he will offer few new hints on that front.

“Our sense is that expectations for (Jackson Hole) are low, and for good reason. There’s little to suggest that Powell may deviate from the comments he’s been giving recently, and we aren’t anticipating much beyond what was included in the latest set of Fed minutes,” Mizuho analysts told clients.

The latest Fed minutes showed policymakers largely expect they will reduce the bond buying this year, though consensus was lacking on when the tapering might start.

“The aspect which may be most relevant for the market is if Powell elaborates on this section of the minutes: that a taper should not be taken as signalling a predetermined course for rate hikes,” Mizuho’s analysts added.

Analysts also said this week’s sharp sell-off in bonds would dampen any market reaction to an unexpected hawkish signal from Powell.

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