German bond yields edge lower, selling pressure on Italy

MILAN: German government bond yields edged lower as dovish comments from central bank officials more than offset expectations of an economic recovery that continued to boost risk appetite.

The Bank of England said on Thursday it would slow the pace of its bond-buying as it sharply increased its forecast for Britain's economic growth, without triggering much price action on the bloc's borrowing costs.

Strong domestic demand for consumer goods propelled a bigger than expected jump in German industrial orders in March , while eurozone retail sales rose by more than expected in March.

Germany's 10-year government bond yield was down one basis point to -0.24%. British 10-year gilt yields were almost flat at 0.816%.

Fed officials tried to allay fears of runaway inflation as the US economy recovers from the pandemic, driving Treasury yields lower on Wednesday.

At the same time, ECB chief economist Philip Lane said on Wednesday inflation would be in the low 1% range next year, and the current round of targeted longer-term refinancing operations (TLTROs) will prove effective.

"Lane's soothing comments on inflation and prospects of TLTRO adjustments add to the easing central bank exit anxiety," Commerzbank analysts told clients.

"The ECB will likely be working on a plan to increase the monthly size of the APP, as we suspect that asset purchases will need to continue at a sustained pace for the foreseeable future to meet the price stability definition," Citi analysts said.

Italy's 10-year government bond (BTP) yield was flat at 0.851%, while the closely-watched spread with German yields widened to 108.3, after hitting its widest since February 3 at 109.6.

Italian 30-year government bond (BTP) yield was up 2 basis points to 1.92%, after flirting with a new high since September 2020.

Uncertainty about the timing of Italy's Recovery Plan, along with its forecast of a rising public deficit, has been weighing on Italian bonds recently, driving yields higher.

"The persistent widening bias in BTPs is probably also underpinning Bunds while Greek government bonds were able to outperform as the new 5-year was launched (on Wednesday)," Commerzbank analysts added.

Greece raised 3 billion euros ($3.61 billion) from the sale of a new five-year bond on Wednesday, with demand for the issue exceeding 20 billion euros.

Greek debt management agency said it was the first benchmark Greek bond to achieve a 0% coupon.