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Euro zone bond yields steady as market spotlight turns to ECB

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Dhara Ranasinghe
·2 min read
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* Euro zone periphery govt bond yields http://tmsnrt.rs/2ii2Bqr

By Dhara Ranasinghe

LONDON, April 19 (Reuters) - Euro zone government bond yields were broadly steady on Monday, with markets largely on hold ahead of this week's European Central Bank meeting.

New supply, estimated at over 30 billion euros ($36 billion) this year and above the average for the year so far according to Commerzbank, could put some upward pressure on yields.

However, significant moves were likely to be limited ahead of Thursday's European Central Bank meeting.

The ECB has stepped up the pace of bond buying in its Pandemic Emergency Purchase Programme since the March meeting to contain a rise in borrowing costs that could derail the recovery.

Latest weekly bond buying data are released later on Monday. Bond markets are watching what the ECB says and does closely amid some of disagreement among policymakers over the future pace of bond purchases especially once recovery takes hold.

"(ECB chief Christine) Lagarde should try and steer clear of the debate on the future of PEPP, to avoid showcasing divisions on the governing council," said Antoine Bouvet, senior rates strategist at ING.

"Too many displays of optimism are equally unadvisable, but the outlook has improved in the euro zone, if tentatively.”

In early trade, most 10-year bond yields across the single-currency bloc were little changed on the day.

Germany's benchmark 10-year Bund yield was steady at around -0.27%, seven basis points below almost one-year highs hit in late February but up 13 bps from six-week lows hit in March.

U.S. Treasury yields were a touch lower and further falls there were expected to push down euro area debt yields.

There was some focus on the race to be Germany's next leader.

The Green party is expected on Monday to present its candidate for chancellor ahead of September's federal election.

"This is an important one to look out for, as the CDU/CSU’s slump in the polls has put them only a few points ahead of the second-place Greens, so it’s no longer implausible that the next German chancellor could come from the Greens," Deutsche Bank strategist Jim Reid said in a note, referring to the ruling Christian Democrats and the CSU sister party.

With CDU Chancellor Angela Merkel stepping down after the election, pressure is mounting on the CDU/CSU bloc to agree on a candidate as its ratings wallow near a one-year low, hurt by the government's handling of COVID-19. ($1 = 0.8347 euros) (Reporting by Dhara Ranasinghe Editing by Raissa Kasolowsky)