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Euro Zone Yields Rise as Focus on Data Releases

July 29 (Reuters) - Euro zone bond yields rose on Thursday as euro zone investor sentiment reached a record high and state-level data hinted that German inflation would exceed expectations.

German consumer price increases accelerated in July, with several states reporting annual inflation rates between 3.4% and 4.3%, suggesting a national estimate due at 1200 GMT would exceed the 3.3% expected in a Reuters poll.

Euro zone economic sentiment hit a record high in July, estimates from the European Commission showed, though a drop in optimism among consumers and the slower rate of increase may signal the peak is fast approaching.

Germany’s 10-year yield, the benchmark for the bloc, rose 2 basis points to -0.43% by 1110 GMT after touching its lowest since February at -0.465% in early trade. It was set for its first daily rise this week.

Antoine Bouvet, senior rates strategist at ING, noted that bond yields were rising across markets on Thursday, with U.S. Treasury, British and Japanese yields also higher, but that the euro zone data was among drivers of higher borrowing costs.

“There is a degree of relief that the FOMC did not push the hawkish envelope further last night, I think that’s helping sentiment across markets,” said Antoine Bouvet, senior rates strategist at ING, referring to Wednesday’s U.S. Federal Reserve decision.

At the conclusion of its meeting on Wednesday, the Fed flagged ongoing discussions around the eventual withdrawal of monetary policy support but gave no details on when it is likely to reduce bond purchases.

Stocks and emerging market assets were broadly higher on Wednesday, while the U.S. dollar tanked in a move that signals improving risk appetite.

“Higher German states (consumer price indexes) could also unnerve the market although some of the jump (is owed) to (value added-tax) base effects,” Bouvet said.

The European Central Bank will publish at 1130 GMT the accounts for its July meeting, the first after it adopted a symmetrical inflation target that will see it keep interest rates at record lows for longer.

“We are most interested in the discussion regarding the two most important, and likely controversial, topics, namely the flexibility of the policy tools and the scope for inflation overshooting,” UniCredit analysts told clients.

“In the final statement, the message on both was left intentionally vague, reflecting the need to reach unanimous support from a split governing council,” they added.

Reporting by Yoruk Bahceli; Editing by Joe Bavier and Catherine Evans

Source: Reuters

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