Euro zone bond yields dip from highs; Fed, inflation data eyed

Euro zone bond yields dipped from highs driven last week by strong US jobs data, in a quiet session ahead of crucial US inflation data due on Wednesday.

Yields had jumped on Friday after stronger than expected US jobs data for July drove US Treasury yields higher, as the strong data was seen as key to the Fed decision on when to start tapering its bond buying.

Euro zone bonds followed suit, giving German 10-year bond yields their biggest daily jump since June 17. Bond yields move inversely with prices.

On Monday, Germany's 10-year yield, the benchmark for the region, was down 1.5 basis points by 0738 GMT to -0.47%, below the -0.451% peak touched on Friday.

Euro zone govt yields edge higher as week begins on bright note

Italy's 10-year yield was down similarly to 0.57%, keeping the closely watched 10-year yield gap between Italy and Germany's bonds at 102 bps.

Focus was on a number of US Federal Reserve policymakers due to speak on Monday and US inflation data due on Wednesday, which will be watched for further clues of when the Fed might start tapering.

Antoine Bouvet, senior rates strategist at ING, noted there weren't many euro zone-specific factors to drive the bloc's bond market this week.

"I think the tailwinds to euro zone government bonds are still pretty strong ... So we should get another week or two of rally before supply kicks in in September," Bouvet said.

He cited lower supply and liquidity over the summer and appetite from investors for carry trades - where investors use cheap funds to buy higher-yielding assets - as tailwind factors.

Euro government bond issuance is set to fall to the lowest weekly volume of the year, with only a 4 billion euro German 10-year bond reopening scheduled, according to Commerzbank.

The main data focus is euro zone investor morale data from Sentix due at 0830 GMT. A Reuters poll expects the reading to show a small drop from the highest since 2018 posted last month.

German exports rose more than expected in June despite persistent supply bottlenecks in manufacturing.

There was little market reaction to comments from European Central Bank policymaker and German central bank governor Jens Weidmann, who on Sunday said the ECB must tighten monetary policy if it needs to counter inflationary pressures and cannot be put off from doing so by the financing costs of euro zone states.