LONDON: Euro zone bond yields rose on Thursday as oil prices jumped to a five-month high, supporting the outlook for inflation, and as investors turned to riskier assets such as stocks.
The European Central Bank is widely expected to refrain from further economic stimulus at its policy meeting on Thursday, providing little additional support for bond yields.
German 10-year yields -- the bloc's benchmark -- rose 3 basis points to 0.18 percent, pulling away from 0.05 percent record lows. European stocks edged up taking their cue from Asian shares which earlier reached 5-1/2-month highs and Wall Street which is just shy of record highs.
A recovery in oil prices has helped shore up concerns about a slowdown in the global economy and the outlook for inflation, sparking a rally in world equity markets.
Crude prices rose to a five-month high on Thursday as the International Energy Agency (IEA) said that 2016 would see the biggest fall in non-OPEC production in a generation, helping rebalance a market that has been dogged by oversupply.
"In recent weeks, oil has been an indicator for the risk sentiment in general and has driven equities up. Bonds, in general, are trading a bit softer on that trend," Commerzbank strategist Rainer Guntermann said.
After new easing measures were unveiled by the ECB last month, Thursday's meeting is expected to be more talk than action.
President Mario Draghi is likely to drive home the case for ultra-loose monetary policy on Thursday, hitting back after a barrage of criticism from German officials who dispute the bank's recipe for tackling the euro zone's economic malaise.
But while March's stimulus package has supported sentiment and financial conditions, it has failed to weaken the euro or lift long-term inflation expectations.
The five-year, five-year euro zone breakeven rate , a key market-based expectation watched by the ECB, dipped below 1.40 percent for the first time in six weeks on Wednesday and is well below the 1.49 percent when the ECB announced its March package.
It is not surprising then that focus is shifting towards possible next steps for ECB easing. Citing anonymous euro zone central bank sources, German daily newspaper 'Die Zeit' reported on Thursday that some ECB members were in favour of extending quantitative easing to equities.
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