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Eyes on ECB speakers as euro bond yields continue rise

Yoruk Bahceli
·2 min read

* Focus on ECB speakers as bond yields rise

* Economic sentiment data expected to show slight improvement

* Italy to launch green bond programme

By Yoruk Bahceli

AMSTERDAM, Feb 25 (Reuters) - Euro zone bond yields continued their rise on Thursday, tracking U.S. Treasuries higher, as investors watch the European Central Bank for further clues on how it will respond to the recent rise in bond yields.

Prospects for more U.S. fiscal stimulus have driven reflation bets across markets, pulling up global bond yields, led by U.S. Treasuries.

In the euro area, that has set German 10-year yields, the region's benchmark, for their biggest monthly rise since January 2018, but the move in the bloc is seen as less justified given its weaker economic outlook relative to the United States.

Any impact from a verbal intervention on Monday by ECB chief Christine Lagarde proved short-lived. After falling that day, the yield is still up 4 basis points this week. Touching its highest since June 2020 at -0.264%, it was last up 3 basis points at 0854 GMT.

The European Central Bank will fight any big increase in real or inflation-adjusted interest rates as it could choke off the bloc's economic recovery, ECB board member Isabel Schnabel told Latvian news agency LETA.

The bank's chief economist Philip Lane is due to speak at 1045 GMT, followed by board members Luis de Guindos at 1500 GMT.

"Everybody will be looking to see do they follow up and add or underline... the note that Christine Lagarde made earlier this week as regards to following nominal yields. So we'd want to see if there's any additional concern voiced by these speakers," said Richard McGuire, head of rates strategy at Rabobank in London.

"If so, that would support the notion that the ECB is becoming concerned the back-up in euro zone yields is unwarranted, which is something many people would agree with."

Italian 10-year yields, one of the biggest beneficiaries of loose ECB policy, rose to their highest since January at 0.723%, up 3 basis points on the day.

That is pushing the closely watched gap between Italian and German 10-year yields towards 100 basis points, a level it last touched during political turmoil in early February.

On the data front, euro area economic sentiment data due at 1000 GMT is expected to show a slight pick-up in February, according to a Reuters poll.

In the primary market, Italy will auction a new five-year bond, which will be the first of its maturity to pay a 0% coupon according to UniCredit.

It will also launch the framework for its green bond issuance programme, which is expected to start this year. (Reporting by Yoruk Bahceli, Editing by William Maclean)