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UPDATE 2-Euro zone bond yields steady, react little to ZEW positive surprise

15 Sep 2020 / 23:21 H.

    * Euro zone periphery govt bond yields http://tmsnrt.rs/2ii2Bqr (Updates prices, adds Italy minister comment, chart)

    By Yoruk Bahceli

    AMSTERDAM, Sept 15 (Reuters) - Euro zone bond yields were steady to a touch lower on Tuesday, shrugging off positive economic sentiment data from Germany and an improvement in risk appetite which lifted global stock markets.

    Yields on 10-year U.S. Treasuries rose one basis point to around 0.68% as the Federal Reserve began its two-day policy meeting, with investors hoping to glean more clues on its future stance on interest rates and asset purchases.

    Data worldwide continues to signal economic recovery and earlier in the day investor sentiment in Germany rose unexpectedly in September, the closely watched ZEW economic research institute survey said.

    That signals confidence in a recovery from the coronavirus crisis despite headwinds from stalled Brexit talks and rising virus cases.

    But German yields were little changed on the day to trade around -0.48% .

    Antoine Bouvet, senior rates strategist at ING, said the ZEW reading was unlikely to be a game changer for Germany's economy.

    It remains to be seen whether this translates into higher "PMIs or Ifo (surveys) and even then, it remains to be seen whether higher PMIs and Ifos are sufficient to close the output gap compared to late last year," he added, referring to business activity and business sentiment surveys due later in September.

    Italian 10-year yields meanwhile slipped back under 1%, last down 2.3 bps on the day.

    Economy Minister Roberto Gualtieri said grants from Europe's Recovery Fund meant the country's deficit would not widen further and debt ratios would fall in coming years.

    ECB

    The European Central Bank upped bond purchases last week, data showed but purchases under its pandemic emergency programme did not increase following a summer lull.

    "The data underscore that the ECB has now probably moved to a steady purchase pace of just above 100 billion euros per month," Commerzbank head of rates and credit research Christoph Rieger said.

    This is just below the average the bank needs if it is to use up its remaining purchase envelopes by next June, he added.

    In the primary market, Germany sold 3.28 billion euros in a top-up of a seven-year bond via auction.

    More dovish messages flowed from the ECB after last week's policy meeting signalled little concern over euro strength.

    Board member Fabio Penetta said the ECB must remain on alert about the state of the euro zone economy and the exchange rate, as the results of its stimulus measures are "not fully satisfactory yet".

    (Reporting by Yoruk Bahceli; Additional reporting by Sujata Rao; Editing by Jane Merriman and Chizu Nomiyama)

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