LONDON, April 17 (Reuters) - Euro zone bond yields fell
slightly on Wednesday after climbing to a 1-1/2-month high the
previous day, as traders assessed central banks' possible next
moves following robust U.S. data.
This week's fall in demand for safe assets pushed bond
yields higher, while surprisingly strong U.S. retail data on
Monday caused investors to further trim bets on Federal Reserve
rate cuts this year, and by extension causing a slight reduction
in European Central Bank (ECB) rate cut pricing.
Germany's 10-year bond yield, the benchmark for
the euro zone, was last 2 basis point (bp) lower on the day at
2.465%, after hitting the highest level since late February on
Tuesday. It has risen since Friday's tumble to 2.318% when
investors snapped up safe assets as tensions between Israel and
Iran ratcheted higher. Yields move inversely to prices.
On Tuesday, top U.S. central bank officials, including
Federal Reserve Chair Jerome Powell, backed away from providing
guidance on when interest rates may be cut and said monetary
policy needed to be restrictive for longer.
On the same day, ECB President Christine Lagarde said the
bank would cut rates soon, barring any major surprises, and
argued the impact of geopolitical events on commodity prices had
not been very significant so far.
"European data remains on the weak side, the disinflation
trend is still intact in Europe and ECB is set to cut rates in
June," said Mohit Kumar, chief Europe economist at Jefferies.
Longer-dated yields fell slightly in the afternoon session.
Emmanouil Karimalis, European rates strategist at UBS, said the
market is keeping an eye on oil prices and their inflation
implications.
Oil has risen to around its highest since October on
the back of Middle East tensions and an uptick in global growth,
but was down around 0.9% on Wednesday.
Italy's 10-year bond yield was last 4 bps lower
at 3.874%, after rising to its highest level since March 1 on
Tuesday.
The German 2-year bond yield, most sensitive to
expectations for policy rates, was last 1 bp higher at 2.942%,
after briefly rising to an almost one-week high.
Analysts said investors will be watching for a slew of
central banks speakers due later in the day, including Lagarde
and Bank of England Governor Andrew Bailey.
Data on Wednesday confirmed euro zone inflation slowed
across the board last month, reinforcing expectations for a ECB
interest rate cut in June, even as rising energy costs and a
weak euro currency cloud the outlook.