Sept 14 (Reuters) - Euro zone bond yields hovered near two-month highs on Tuesday, with the focus on a U.S. inflation print due later in the day.
The data, due at 1230 GMT, will be watched closely before next week’s U.S. Federal Reserve meeting. It is expected to show consumer prices rose 0.4% in August, down from 0.5% in July, according to a Reuters poll.
The year-on-year rise is also expected to fall to 5.3% from 5.4% in July, suggesting further evidence that inflation, which has been at the top of investors’ agenda this year, may be starting to cool.
Bond yields in the euro area were unchanged before the reading, with Germany’s 10-year yield, the benchmark for the bloc, at -0.33% by 0722 GMT -- near an eight-week high of -0.31% hit last week.
Analysts said a higher-than-expected reading may push U.S. Treasury yields moderately higher, a move often followed by euro zone bond yields.
“We expect the European government bond space to remain calm until the (Sept. 26) German election or U.S. yields resume their rise,” said Althea Spinozzi, fixed income strategist at Saxo Bank.
“The ECB delivered a dovish taper successfully, providing ample support to bond supply and carry trades during the mid-term.”
The European Central Bank slightly slowed the pace of its pandemic emergency bond purchases last Thursday, calming fears around a hawkish response from the ECB that had worried markets before the meeting.
But a market rally that followed was wiped out as euro zone bond yields rose alongside U.S. Treasury yields after the meeting.
Focus is also in the primary market, where the European Union has started the sale of a seven-year syndicated bond sale to back its coronavirus recovery fund, according to Refinitiv IFR.
It will raise 9 billion euros, IFR said, in the EU’s first market outing since the summer break.
The bond sale precedes the EU’s first bills auction on Wednesday, where it will raise up to 5 billion euros from three-and six-month bills. As auctions are almost exclusively used by governments, it will mark another step in the issuer’s evolution into one of the bloc’s leading debt issuers.
In Tuesday’s auctions, Germany will target 5 billion euros from the re-opening of a two-year bond, Italy will raise up to 5.75 billion euros from the re-opening of bonds due 2024, 2028 and 2051, and the Netherlands will raise up to 2 billion euros from the re-opening of a bond due 2052.
Reporting by Yoruk Bahceli, Editing by Tiothy Heritage