Euro zone bond yields creep up, Draghi to speak

LONDON: Government bond yields in the euro area crept up on Monday, giving up declines seen after Friday's U.S. non-farm payrolls data, as a stronger tone in world equity markets diminished the appeal of fixed income.

The focus was expected to turn to European Central Bank chief Mario Draghi, who is scheduled to give a statement to the European parliament later in the day.

For now, bond markets took their cue from growing risk sentiment globally, with European stock markets broadly higher .

Having hit a five-week low on Friday after U.S. job numbers revealed tepid wage inflation in June, Germany's 10-year bond yield rose 2.5 basis points to 0.31 percent.

"It's mainly coming from the stock market," said KBC rates strategist Mathias van der Jeugt. "We have Draghi this afternoon and he will stay close to the lines of recent communication, although there is some semantics about the ECB's forward guidance on rates."

The ECB said last month that interest rates would stay low through the summer of 2019 and there is some discussion in financial markets as to whether this includes September.

Most euro zone 10-year bond yields were 1-2 bps higher on the day, with the exception of Italy, which tends to benefit when demand for riskier assets grows.

In a sign of some reluctance to hold safe-haven German bonds, official data showed Japanese investors sold a net 712.1 billion yen ($6.45 billion) of the bonds in May, their largest net sales in more than a year.

That selling followed a rally in German and U.S. government bonds on political upheaval in Italy in late May.

German 10-year bond yields are down 50 bps from almost 2 1/2-year highs hit in February, on expectations that interest rates in the euro zone will stay low for some time, slowing momentum in economic growth and trade war jitters that have boosted demand for safe-haven assets.

"The path of least resistance is for yields to go higher as a lot of negative news has now been priced in," said Nick Gartside, international CIO of fixed income at JPMorgan Asset Management.

A weaker tone in most euro zone debt markets on Monday also came as markets braced for bond sales from Germany, the Netherlands, Ireland and Italy this week. The bulk of that issuance is in longer-dated maturities.