LONDON, Nov 7 (Reuters) - Euro zone bonds were mostly steady on Thursday with investors wary of making portfolio adjustments before a European Central Bank policy update they will examine for any hints of further monetary easing ahead.
Spanish and Italian yields rose slightly but remained near multi-month lows. Spanish debt rallied early this week on a Fitch rating outlook upgrade, while Italian debt firmed after a record sale of an inflation-linked bond on Thursday.
The ECB is expected to resist pressure later in the day to cut interest rate amid a sharp drop in inflation, keeping its key refinancing rate unchanged at 0.50 percent. But ECB President Mario Draghi could signal possible action ahead.
The ECB will update its growth and inflation forecasts for the euro zone at its December meeting, which some economists see as a likelier date for a rate cut.
"We expect Draghi to be very dovish and they (the ECB) might flag (a rate cut) for December and this is not entirely in the price," one trader said.
Bund futures fell 8 ticks to 141.08, while 10-year German yields were flat at 1.75 percent, some 10 basis points lower than they were after the last ECB meeting.
KBC strategist Piet Lammens said yields could recover that ground if the ECB delivers no hint of further easing.
Any easing signal is likely to be supportive for peripheral debt as investors would take more risks to maximise returns in a low-rate environment. Spanish bonds could resume their rally once an auction of 3-4 billion euros of 2018, 2023 and 2026 bonds gets out of the way later on Thursday.
Ten-year Spanish yields were 3 bps higher at 4.17 percent, having hit six-month lows of 3.96 percent this week. A fall below 3.95 percent would take them to three-year lows and below 3.80 percent to four-year lows.
Funding pressure for Italy reduced significantly after a bumper 22.3 billion euro sale of "BTP Italia" bonds - four-year inflation-linked paper aimed at retail investors.
The sale allowed Italy to reach about 95 percent of its funding goal for the year and showed the country can rely on wealthy domestic investors as a buffer in case the euro zone crisis escalates again and foreign investors shy away.
Ten-year Italian yields were 1 bp up at 4.20 percent, having hit five-month lows of 4.07 percent this week. "(This week's) supply is weighing on the periphery, but this pressure should go away soon," KBC's Lammens said.
"The trend is positive and the ECB (outlook) is a good reason for another rally in Italian and Spanish bonds."
yahoo.com
Spanish and Italian yields rose slightly but remained near multi-month lows. Spanish debt rallied early this week on a Fitch rating outlook upgrade, while Italian debt firmed after a record sale of an inflation-linked bond on Thursday.
The ECB is expected to resist pressure later in the day to cut interest rate amid a sharp drop in inflation, keeping its key refinancing rate unchanged at 0.50 percent. But ECB President Mario Draghi could signal possible action ahead.
The ECB will update its growth and inflation forecasts for the euro zone at its December meeting, which some economists see as a likelier date for a rate cut.
"We expect Draghi to be very dovish and they (the ECB) might flag (a rate cut) for December and this is not entirely in the price," one trader said.
Bund futures fell 8 ticks to 141.08, while 10-year German yields were flat at 1.75 percent, some 10 basis points lower than they were after the last ECB meeting.
KBC strategist Piet Lammens said yields could recover that ground if the ECB delivers no hint of further easing.
Any easing signal is likely to be supportive for peripheral debt as investors would take more risks to maximise returns in a low-rate environment. Spanish bonds could resume their rally once an auction of 3-4 billion euros of 2018, 2023 and 2026 bonds gets out of the way later on Thursday.
Ten-year Spanish yields were 3 bps higher at 4.17 percent, having hit six-month lows of 3.96 percent this week. A fall below 3.95 percent would take them to three-year lows and below 3.80 percent to four-year lows.
Funding pressure for Italy reduced significantly after a bumper 22.3 billion euro sale of "BTP Italia" bonds - four-year inflation-linked paper aimed at retail investors.
The sale allowed Italy to reach about 95 percent of its funding goal for the year and showed the country can rely on wealthy domestic investors as a buffer in case the euro zone crisis escalates again and foreign investors shy away.
Ten-year Italian yields were 1 bp up at 4.20 percent, having hit five-month lows of 4.07 percent this week. "(This week's) supply is weighing on the periphery, but this pressure should go away soon," KBC's Lammens said.
"The trend is positive and the ECB (outlook) is a good reason for another rally in Italian and Spanish bonds."
yahoo.com
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