Italy's bond yields rise to highest in almost 6 weeks

LONDON: Euro zone government bond yields rose on Monday, with Italian borrowing costs rising to their highest in almost six weeks as markets brushed aside benign inflation data from Germany and Italy to continue last week's US-triggered move.

Comments from European Central Bank board member Isabel Schnabel that the central bank has no reason for now to add to its stimulus measures added to upward pressure on peripheral bond yields, with Spanish 10-year yields rising to their highest since July in late trade.

Schnabel also played down concerns over recent euro strength, which some analysts fear could automatically negate some of the ECB's stimulus effort.

"Her comments suggest the ECB will resist an immediate response to the euro's strength as long as it is seen as a sign of confidence in the euro area recovery," said Frederik Ducrozet, global strategist at Pictet Wealth Management.

Data meanwhile showed the ECB bought just over 16 billion euros ($13.41 billion) of assets last week as part of its quantitative easing programme, below the 19.18 billion euros it purchased a week earlier.

Italy's 10-year bond yield rose almost 6 basis points to 1.16%, its highest level in almost six weeks.

Euro area bond yields were broadly higher, showing little immediate reaction to news that German annual consumer prices fell for the first time in more than four years in August.

Italian EU-harmonised consumer prices came in at a preliminary -1.3% month-on-month in August, with annual inflation slowing sharply to -0.5%.

Germany's 10-year bond yield was up 2 bps at -0.39%, nearing Friday's 2-1/2 month high of around -0.37%.

Bond yields in Europe and the United States have been pushed up since Federal Reserve Chair Jerome Powell last week committed the US central bank to keeping inflation at 2% on average, allowing prices to run hotter to balance periods when they undershoot.

Yields on 30-year Treasuries jumped almost 16 basis points last week and were last at around 1.49%, 135 basis points above the two-year yield.

That spread is nearing the June gap of 146 basis points, the largest since late 2017.

A steepening in the US Treasury curve has sparked a similar shift in the German bond market, with the gap between 30 and two-year bond yields to around 73 bps - close to its widest since June.

"Bunds are taking direction from US Treasuries and the resistance area for 10-year yields around -0.4% continues to hold," said Rainer Guntermann, rates strategist at Commerzbank.