Euro zone bond yields stay near one-month highs as Powell offers few clues

LONDON: German bond yields hovered near one-month highs on Friday after falling briefly on comments by Fed Chair Jerome Powell, and marked their biggest weekly rise in at least two months. Powell's comments defended the view that current high inflation will likely pass and stopped short of signalling the timing for any policy shift.

Bonds saw their worst daily performance in six months on Wednesday, when benchmark 10-year yields jumped 6-10 bps to one-month highs. Analysts attributed this partly to caution ahead of Powell's speech at the Jackson Hole symposium on Friday. Euro area bond yields are closely correlated to moves in US Treasuries.

Bond yields move inversely with prices.

"Markets appear to be buying into the dovish taper for the time being," Oliver Blackbourn, multi-asset portfolio manager at Janus Henderson Investors, said.

"The question that was not addressed was how quickly the Fed will reduce asset purchases," he added.

Analysts also said this week's sharp sell-off in bonds would dampen any market reaction to Powell's comments.

"Yields currently price in the Fed starting to taper its bond-buying programme by year-end and raising rates in 2023," Annalisa Piazza, fixed income research analyst at MFS Investment Management said, adding "Powell's message was uneventful."

The latest Fed minutes showed policymakers largely expect they will reduce the bond buying this year, though consensus was lacking on when the tapering might start.

On Friday, by 1520 GMT, Germany's 10-year yield, the benchmark for the euro area, was unchanged at -0.41%, just below Thursday's one-month high at -0.401%.

Italy's 10-year yield was down 2 basis point to 0.65%, keeping the closely watched gap to German 10-year yields at 106 bps, below this week's 109 bps peak, the highest in over a month.

US economic data didn't trigger any price action in the euro zone. US consumer spending slowed in July as a decline in motor vehicle purchases due to shortages offset a rise in outlays on services, supporting views that economic growth will moderate in the third quarter amid a resurgence in COVID-19 infections.

Though markets calmed on Friday, the sell-off earlier in the week set up Germany's 10-year yield for its biggest weekly jump since early May, up 8 bps this week, while Italy's 10-year yield was set for its biggest weekly rise since mid-June, 11 bps this week.