AMSTERDAM: Euro zone bond yields edged up on Tuesday, with Southern European bonds led by Italy underperforming on reports that Italy's government might soon seek parliamentary approval for further stimulus spending.
After their worst monthly performance in years in February - when bets that US fiscal stimulus would boost inflation and growth pushed global bond yields higher - markets changed course on Monday, with bonds rallying, particularly in Europe and Asia.
After major benchmarks on Monday marked their best daily performance since June 2020, euro area bonds calmed on Tuesday. Germany's 10-year yields, the benchmark for the region, rose 2 basis points to -0.32% at 1140 GMT.
Southern European bonds came under renewed pressure, with Italian bonds underperforming. The 10-year yield rose 4 basis points to 0.71%.
Bond analysts attributed the move to a Bloomberg News report that said, citing people familiar with the matter, the Italian government may seek parliamentary approval for more stimulus spending as soon as next month.
There is also pressure on the Italian bond market from a green bond syndication expected in the coming days. Bond yields tend to rise ahead of sizable bond sales as investors make room for new supply.
Italy picked structuring advisors for the sale and held an investor call for the sale on Monday, Reuters reported.
Focus was also on euro zone inflation, which held steady as expected last month, a first estimate showed -- a break in what is likely to be a temporary but sharp spike in consumer prices in the coming months.
"For anyone in doubt: the (European Central Bank) is clearly not concerned about being behind the curve at the moment. They will see these inflationary drivers as largely fleeting," said Bert Colijn, senior economist, euro zone at ING.
"The big concern is around the higher bond yields that have been driven by developments in the US Because of that, we expect the ECB to increase asset purchases and address the rising bond yields at next week's meeting."
The ECB's weekly bond buying data released on Monday showed a slowdown in net purchases during last week, while many called for an increase, although the bank said the decline was due to high redemptions.
The ECB's weekly financial statement at 1400 GMT will show the extent of those redemptions.
The bank's vice president, Luis de Guindos, said in comments to Portuguese newspaper Publico published on Tuesday that the ECB is open to recalibrating its programme if it concludes the rise in nominal yields will have a negative impact on financing conditions.
Several policymakers have called on the bank to act. It's unclear whether it acted towards the end of last week, which isn't covered by Monday's data.