Euro zone bond yields hold near one-month high after sell-off

LONDON: Euro zone government bonds were steady in early trading on Thursday, with German and Italian yields holding near the one-month highs they reached in a sell-off the previous day.

German and Italian 10-year yields had their biggest one-day rise in nearly six months on Wednesday, in a move which analysts said was due to a combination of factors, including investors dumping bonds before the Federal Reserve's Jackson Hole summit and two European Central Bank officials sounding upbeat about the euro zone economic outlook.

Market attention this week has been largely focused on the annual Jackson Hole conference, and the possibility of US Federal Reserve Chair Jerome Powell's speech containing hints about his stance on tapering asset purchases.

Euro zone bond yields steady, flash PMI in focus

But as the event drew nearer, investors have lowered their expectations that Powell will make market-moving comments.

ING rates strategists wrote in a note to clients that Wednesday's sell-off was also due to investors anticipating a pick-up in debt supply.

"Heading into the September wall of supply, and into the Jackson Hole event risk, it makes sense for investors to shed their summer carry trades," ING said.

At 0724 GMT, Germany's benchmark 10-year yield was little changed at -0.419%, having reached as high as -0.415% on Wednesday.

Accelerating inflation and rising COVID-19 cases made German consumers more hesitant to buy in September, the GfK consumer sentiment index survey showed on Thursday.

Italy's 10-year yield was up by one basis point at 0.6804%, its highest since July 22.

Spain's 10-year yield was steady, also close to its highest in more than one month, at 0.311%.

Bond investors will be focused on European Central Bank speakers, including board member Isabel Schnabel who is due to speak at a roundtable at 1500 GMT.

The minutes of the ECB's July meeting will also be released later in the day.

"In view of the limited downside and more substantial upside potential to yields, we stick with our Bund short bias but see room for some near-term consolidation as the market looks oversold after yesterday's sell-off near -0.4% in 10-year yields," Christoph Rieger, Commerzbank's head of rates and credit research, said in a client note.