UPDATE 2-Euro zone yields edge higher on debt supply, economic green shoots
(Updates prices, adds details)
* Chinese exports rise by most in nearly 1-1/2 years
* German yields rise
* Dovish ECB meeting could pull yields down again
* Euro zone periphery govt bond yields tmsnrt.rs/2ii2Bqr
By Abhinav Ramnarayan
LONDON, Sept 7 (Reuters) – Euro zone bond yields ticked higher on Monday on signs of an improved global economy and ahead of a week of healthy supply, as countries get to grips with increased borrowing requirements to help fund the response to the COVID-19 crisis.
China’s exports rose the most in nearly 1-1/2 years in August, data showed, a sign that more of its trading partners — such as the euro zone — are reopening their economies and are on the mend.
Also on Monday, data showed German industrial production rose 1.2% in July from the prior month, a sign that Europe’s “engine room” is recovering from the depths of recession.
“Even if industrial production remains unchanged for the next two months, the quarterly growth rate would still be around 10%. This illustrates that a strong rebound in the German economy is in the making,” said Carsten Brzeski, ING’s chief economist for the euro zone.
In addition, more than 17 billion euros of supply is due later this week with Austria, the Netherlands, Germany, Portugal and Italy all selling debt in auctions.
Italy has hired a syndicate of banks to sell a new 20-year bond, the Treasury said in a statement. It said the new bond will be launched “in the near future subject to market conditions,” a phrase usually used a day before a sale. Ireland and Spain are also potential issuers, according to analysts.
On Monday, Luxembourg raised 1.5 billion euros via the first government “sustainability” bond sale in Europe.
Italian bond yields were higher across the curve with the 10-year yield up 3 basis point at 1.12%, while benchmark German 10-year bond yields rose one basis point to -0.46%.
The upward move in yields could be checked closer to the European Central Bank meeting on Thursday, if the signs are that policymakers are unimpressed by the indications of an economic recovery and flag further stimulus.
“We see the likelihood for a strongly dovish tone to triumph, in which flexibility to increase the PEPP envelope will be the most attractive policy lever,” analysts at Mizuho said in a note, referring to the ECB’s Pandemic Emergency Purchasing Programme to buy bonds during the coronavirus crisis.
Investor expectations for long-term euro zone inflation fell to a one-month low below 1.19%, according to the five-year, five-year forward inflation swap.
The inflation outlook is in focus ahead of the ECB’s meeting and last week’s dismal euro zone reading, which showed inflation in August turn negative for the first time since 2016. (Reporting by Abhinav Ramnarayan; additional reporting by Julien Ponthus and Yoruk Bahceli; editing by Ed Osmond and Leslie Adler)
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