Euro zone bond yields fall, focus falls on key week for US bonds

LONDON: Euro zone government bond yields nudged lower on Monday, holding below recent highs as markets bided their time in a key week for US Treasury markets.

US Treasury yields, which have stabilised in the past two weeks after a sharp rise, could get a fresh steer from auctions - $96 billion of three- and 10-year bonds will be sold on Monday - and key inflation data on Tuesday.

That is likely to set the tone for European bond markets, where yields have risen this year as well on US-led reflation expectations.

"The large US Treasury supply and the string of likely upbeat US activity and inflation data this week leave US Treasuries still vulnerable with spillover risks to Bunds," said Commerzbank rates strategist Rainer Guntermann.

In early trade, Germany's benchmark 10-year Bund yield was down almost 2 basis points on the day at -0.31%, 10 bps below almost one-year highs hit in February.

The US economy is at an "inflection point" with expectations that growth and hiring will pick up speed in the months ahead, but also risks if a hasty reopening leads to an increase in coronavirus cases, Federal Reserve Chair Jerome Powell said in an interview aired Sunday.

Benchmark 10-year yields across the currency bloc were around 2 bps lower on the day. Italian yields pulled back from Friday's one-month high on growing concern about possible delays in the EU recovery fund to aid the post-coronavirus recovery.

Italy's 10-year bond yield was last down 3.7 bps at 0.70% , below Friday's high around 0.76%.

Weekly European Central Bank bond buying data will be released during the day and is likely to be in focus for bond markets. The data covers trades settled by April 9.

Analysts at UniCredit said the data, the first indication of purchases in the second quarter, will be closely watched.

ECB President Christine Lagarde has suggested the ECB expects emergency bond purchases in the second quarter to be held at a "significantly higher pace" than during the first quarter.

They also noted that the reporting week contains two holidays, so may reflect a relatively low buying amount.