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Euro Zone Bond Yields Rises as Kazaks Bond Buying Slows Up

May 7 (Reuters) - Euro zone bond yields rose on Friday as a European Central Bank policymaker drew attention to the possibility of the bank slowing its pandemic stimulus next month.

The ECB can decide to reduce the pace of its emergency bond purchases (PEPP) in June if borrowing costs remain low, policymaker Martins Kazaks, the governor of Latvia’s central bank, said in a Bloomberg interview.

The ECB accelerated the pace of PEPP buying for the second quarter at its March meeting to hold down a rise in bond yields. It will have to revisit that decision in June.

Kazaks said he thought the bank would “certainly discuss” increasing its conventional bond purchases if the inflation outlook keeps to the current forecast when PEPP expires.

Germany’s 10-year yield, the benchmark for the region, was up 2 basis points to -0.22% at 0816 GMT.

Yields on Italian debt, a leading beneficiary of the PEPP programme which has recently underperformed given the uncertainty, were up over 2 basis points to 0.90%.

“The story this morning that caught quite some headlines are really nothing new,” said Piet Christiansen, chief analyst at Danske Bank. “As markets reacted to this, it seems like markets really want to catch the absolute start of the tapering of net purchases discussion that eventually will happen this year.”

Kazaks’ comments on increasing conventional bond purchases were more interesting, Christiansen said.

Elsewhere, traders are waiting for employment data out of the United States at 1230 GMT, which a Reuters poll expects will show nearly 1 million added to the economy in April.

“Regarding today’s U.S. payrolls number, the Fed’s (Chairman Jerome) Powell has largely taken the excitement out of today’s anticipated strong reading as he will want to see a series of good readings before contemplating any changes,” ING analysts told clients.

Analysts note that Treasury yields in particular, which are closely correlated with German bonds, have failed to rise much on recent strong data releases, failing to return to the pre-pandemic highs they touched in March.

Later on Friday Moody’s will review Italy’s credit rating, which Commerzbank analysts expect it will reaffirm at one notch above junk.

Moody’s follows S&P, which in April reaffirmed Italy’s BBB rating -- a notch higher than Moody’s and the highest of the main rating agencies -- as it balanced the COVID-19 pandemic-related deterioration of Italy’s finances against European Central Bank and European Union support.

(Reporting by Yoruk Bahceli, Editing by Gareth Jones and timothy Heritage)

Source: Reuters

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