Eurozone bond yields fall and inflation fades


* Eurozone Periphery Government Bond Yields

LONDON, June 2 (Reuters) – Eurozone government bond yields fell by one to two basis points early in Wednesday’s session, ahead of the European Central Bank meeting next week.

Yields were little changed overall on Tuesday, even after HICP data showed eurozone inflation hit 2% in May – a sign that markets were confident the European Central Bank would not decide to slow down the pace of its bond purchases at its June 10 meeting. .

The ECB said a short-term rise in inflation is due to one-off factors and long-term price pressures remain moderate, meaning that a stimulus will always be needed. Yields fell last week in response to conciliatory comments from ECB officials.

At 07:19 GMT, the German benchmark 10-year yield was down 2 basis points to -0.193%.

The Italian 10-year yield fell 2 basis points to 0.8825%, heading to Tuesday’s low of 0.876%, which was the lowest in more than 3 weeks.

A gauge of long-term Eurozone market inflation expectations – the five-year and five-year break-even point – was 1.5939%. In the previous session, it hit 1.61%, its highest level in nearly two weeks, as oil prices rose above $ 70.

“Especially with a core HICP in line with expectations and expected to remain below 1% in the coming months, inflation fears seem contained for the moment with breakeven points not widening despite firm oil prices” , wrote Michael Leister, Commerzbank rate strategist in a note to clients.

On a calm day for economic data, markets will pay attention to comments from central bank stakeholders.

Frank Elderson, Member of the Executive Board of the ECB, will speak at a conference on climate change at 10:15 a.m., while ECB President Christine Lagarde will speak at an awards ceremony at 5:10 p.m. GMT.

In terms of issuance, Germany is expected to sell 4 billion euros ($ 4.88 billion) of 5-year government bonds.

On Tuesday, the European Commission announced it would borrow around € 80 billion in long-term bonds this year to finance the € 750 billion NextGenerationEU fund to support the recovery.

“We have no doubts about the capacity of the market to absorb this amount of debt, but it is worth watching the public finances announcements as the 2022 deficit forecasts strengthen,” wrote the ING rate strategists in a note to clients.

“If sovereigns fail to contain deficits as much as the EC (European Commission) expects, there will be more competition for demand.” ($ 1 = 0.8190 euros) (Reporting by Elizabeth Howcroft; editing by Barbara Lewis)

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