German yields steady before euro zone inflation data

LONDON: German Bund yields held steady on Tuesday before euro zone inflation data, which might influence expectations of whether the European Central Bank could ease monetary policy further in the near term.

Consumer prices are forecast to rise by 0.9 percent in December, a similar pace to that seen in the previous month.

However, below-forecast German inflation figures on Monday may have prompted a small shift lower in expectations for euro zone inflation, analysts said. In any case the reading is likely to be well below the ECB's target of nearly 2 percent, allowing President Mario Draghi to keep his "ready to act if needed" stance on policy.

This is likely to limit upward pressure on Bund yields stemming from an improving global growth outlook.

"It would be a very low figure but unless we get a very negative surprise we think they (the ECB) will stick to their wait-and-see tone," said Piet Lammens, a strategist at KBC. "A negative surprise might see some nervousness (in the market), but I think the ECB will wait for more data." Bund futures were last 2 ticks higher at 139.56, while 10-year cash yields were little changed at 1.907 percent, having fallen about 6 basis points on Monday.

Services sector data on Monday showed a slowdown in the pace of expansion in China and the United States and while in the euro zone it accelerated at a regional level, big economies such as Italy and France were lagging.

But analysts said the global growth outlook for 2014 remained upbeat and this should help the euro zone's lower-rated bonds outperform German Bunds.

Ireland is looking to capitalise on the improved market sentiment, announcing on Monday plans to sell a new 10-year bond via syndication, its first since exiting its EU/IMF bailout.

Dublin gave no details of the size of the issue, but a source familiar with the transaction said guidance was for around 3 billion euros.

Irish 10-year bonds yields were steady at 3.36 percent, but one trader said the sale could trigger another leg in the rally that has seen the yields fall from 2011 peaks of over 15 percent.

"The Irish deal hitting the market would be an absolute blow-away. There is plenty of demand out there and it will be very easily placed," the trader said.