LONDON: German bond yields fell on Wednesday, catching up with a rally in U.S. Treasuries overnight as investors bet low inflation was likely to persist and might deter the Federal Reserve from hiking rates until later this year.
There was little market reaction to a closely watched survey on German business sentiment that provided further signs the euro zone's largest economy could be gaining momentum.
German 10-year yields, which set the benchmark for euro zone borrowing costs, were down 2 basis points at 0.22 percent. Yields on other top-rated bonds were 1-2 bps lower, as positive sentiment from the U.S. bond market spilled into Europe.
Yields on U.S. 10-year bonds fell back below 1.90 percent on Tuesday as low inflation expectations persisted even after data showed consumer prices increased last month after falling in January, edning three straight months of declines.
Treasuries have gained since last week when the Fed cut its inflation outlook and growth forecast.
"Safe-haven bonds are taking their cue from the postiive tone overnight in U.S. Treauries as last week's dovish shift on the part of the FOMC continues to support debt markets," Rabobank strategist Richard Maguire said.
He, however, said there seemed to be little conviction behind euro zone bond market moves this week with investors wary of adding to positions ahead of the Easter break and the end of the first quarter.
Yields on Spanish and Italian 10-year bonds were 4 bps down at 1.34 percent and 1.37 percent, respectively, as the market braced for more debt supply from Italy on Thursday after Spain's sale of a new 15-year inflation-linked bond on Tuesday.
Focus also remains on Greece after it promised to deliver reform plans to its euro zone creditors by Monday to unlock funds it urgently needs to avert bankruptcy.
Hopes it can secure the money before state coffers run dry in the coming month has provided some relief for its debt and stock markets. Greek yields were 3-16 bps lower.
The country remains under pressure after the European Central Bank told its banks not to increase their holdings of Greek debt, including Treasury bills.
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