Eurozone bond yields steady ahead of ECB meeting

London

EUROZONE bond yields held steady ahead of the ECB's policy meeting where the bank is largely expected to expand its bond buying programme.

Many analysts expect the European Central Bank to increase its emergency bond purchases by 500 billion euros (S$785 billion), as purchases at their current rate are expected to run out by October.

Focus is also on whether the bank will expand purchases to include "fallen angels" - companies that have lost their investment-grade ratings during the coronavirus crisis.

"It will be a very close call with the hawks potentially swaying a consensus-minded president Christine Lagarde to defer the announcement, also to keep pressure on the politicians to deliver on the EU Commission's 750-billion-euro Next Generation EU Fund," Commerzbank analysts told clients, referring to last week's recovery fund proposal.

The market now feels a little more tentative towards an expansion of the bond purchases, according to Mizuho analysts.

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German 10-year yields are up 10 basis points this week, while their Italian equivalents are up six basis points.

Most eurozone bond yields were marginally changed in early trade. Germany's 10-year bond yield was up one basis point to -0.34 per cent, near seven-week highs. Italian 10-year yields were near one-week highs at 1.55 per cent.

In the primary market, France is due to sell up to 11 billion euros of bonds due 2030 and 2052 via an auction.

The German government agreed a new 130-billion-euro stimulus package on Wednesday to be delivered this year and next year, adding to efforts to speed up the country's recovery form the coronavirus.

With most of the stimulus due to be provided by the federal government, Danske Bank analysts said they expect German government bond issuance to increase. REUTERS