Euro zone bonds set to end March on strong note, Spain shines

LONDON: There will be no London-based euro zone bond market report on Friday March 30 and Monday April 2 due to public holidays. **

Borrowing costs in the euro area crept up on Thursday, but were set to end March with big monthly falls on confidence the ECB will go slow when winding up stimulus and signs the euro zone economy is losing momentum.

Although German 10-year bond yields rose above 0.50 percent as regional data showed inflation picking up, yields for the benchmark were down around 16 basis points in March and set for their biggest monthly fall since August.

French and Italian bond yields were down around 20 bps this month, while Spanish and Portuguese bond yields have fallen more than 30 bps..

A sharp selloff in technology stocks this week has weighed on world equity markets and further underpinned fixed income.

And Spanish bonds had an additional boost after S&P Global upgraded Spain's credit rating to single-A territory last week, marking a second ratings upgrade for Spain this year.

Spanish 10-year bond yields were poised for their biggest monthly fall since mid-2016, when borrowing costs across the bloc fell sharply as Britain's decision to leave the European Union stoked fears about the global growth outlook.

Spain is one of the best-returning government euro zone bond markets so far in 2018 as the country pushes closer to better-rated euro zone states such as Belgium, France and Ireland, referred to as the "semi-core".

In fact, the gap between Spanish and German 10-year bond yields tightened on Thursday to 69 bps - its narrowest in 6-1/2 weeks.

"There's a big semi-core convergence trade going on with Spain at the moment," said Rabobank fixed income strategist Lyn Graham Taylor.

"People like the growth story and are happy to look through the tension with Catalonia," he said, referring to the wealthy region which held an illegal secession referendum last year.

Most bond yields in the bloc were 0.5 to 1.5 bps higher on the day in generally subdued trade ahead of Easter.

There was some focus on German state inflation numbers that point to a pick up in inflation in Europe's biggest economy in March.

Preliminary pan-German consumer price data was due at 1200 GMT, based on data from up to 16 states.

US personal spending and consumption data, a closely watched gauge of inflation, was also due out later in the day.