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Euro zone bonds edge up, react little to ZEW positive surprise

Kitco News

* Euro zone periphery govt bond yields (Adds details, comments)

AMSTERDAM, Sept 15 (Reuters) - Euro zone bond yields ticked up on Tuesday but showed a subdued reaction as economic sentiment data from Germany delivered a positive surprise.

Investor sentiment in Germany rose unexpectedly in September, the closely watched ZEW economic research institute survey said on Tuesday, signalling confidence in a recovery from the coronavirus crisis despite headwinds from stalled Brexit talks and rising virus cases.

But German and Italian bond yields were little changed after the reading, both up around 1 basis point to -0.47% and 1.04% respectively.

“It’s hard to see how this is really a game changer in terms of the outlook for the economy,” said Antoine Bouvet, senior rates strategist at ING.

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.

Focus was also on Monday’s European Central Bank bond purchase data. It raised its overall bond purchases last week, but purchases under its pandemic emergency programme did not increase following a summer lull, as some market participants had expected, holding at the average level in August.

“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, adding this was just below the average volume the bank would need to buy to use all its remaining purchase envelopes until next June.

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

Focus also remains on dovish comments from ECB officials after the bank delivered a more hawkish than expected message after its policy meeting last week.

The ECB must remain on alert about the state of the euro zone economy and the euro’s exchange rate, as the results of its stimulus measures are “not fully satisfactory yet”, board member Fabio Penetta said on Tuesday.

Dutchman Frank Elderson appears to be the front runner for a seat on the European Central Bank’s executive board as central and eastern European countries, who also want the job, have so far not agreed on a single candidate, euro zone officials said. (Reporting by Yoruk Bahceli. Editing by Jane Merriman and Chizu Nomiyama)

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