Euro zone bond yields bounce back as inflation revised up

LONDON: Euro zone government bond yields rose on Thursday after a previous estimate that the bloc's consumer prices fell last month was revised upwards to show inflation was zero.

Ireland smoothly sold 750 million euros of 10-year bonds, wrapping up a busier than expected week in terms of debt issuance, in which the Netherlands, France, Germany and Italy sold ultra-long bonds.

Eurostat said that the annual rate of inflation was 0.0 percent in March, compared with a previous flash estimate of -0.1 percent. Economists polled by Reuters had forecast the latter. On a monthly basis inflation was in line with market expectations.

Moreover, there was a slight upward revision to 1.0 percent of what the European Central Bank defines as core inflation, excluding energy and unprocessed food.

German 10-year Bunds, the benchmark for euro zone borrowing costs, were up 1 basis point on the day at 0.15 percent, having fallen as low as 0.12 percent before the inflation data.

"Obviously, inflation is still only zero but there's a positive underlying dynamic and that's why the market has responded," said Gianluca Ziglio, executive director for fixed income research at Sunrise Brokers.

Irish 10-year yields were flat at 0.85 percent, with the bonds outperforming their euro zone peers, whose yields moved in line with the Bund.

Demand was more than double the supply at Ireland's second auction of the year. Dublin is already fully funded for 2016 and since January has raised almost 5 billion euros out of a guided range of 6 billion to 10 billion euros of debt to finance the state into 2017.

Having been forced to seek a bailout at the height of the debt crisis, Ireland, now the euro zone's top performer in terms of growth, raised 100 million euros via its first 100-year bond two weeks ago.

The 2.35 percent yield on its century bond was a touch more than it paid to borrow over three months in 2012 on its return to the market after a two-year hiatus.

This year's slow and unpredictable talks in forming a government have not hurt investor appetite so far.

It will hold another bond auction on May 12.