Dovish ECB Comments Push Down Euro Area Yields

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May 26 Reuters Euro zone bond yields edged lower on Wednesday in a market supported by dovish European Central Bank commentary.

Euro area yields rose sharply earlier in the month, driven by speculation that a stronger economic outlook driven by speedier vaccinations in the bloc could prompt the ECB to slow its PEPP purchases at its June 10 meeting.

Those bets pushed Germanys 10year yield, the blocs benchmark, to twoyear highs near positive territory last week, and the risk premium on Italian bonds to levels seen last November, before the ECB expanded the stimulus.

But comments from ECB president Christine Lagarde last week that it was too early for the central bank to discuss slowing its pandemic emergency bond purchases PEPP, reinforced by comments from several others, have removed the upward pressure on euro area bond yields.

Adding to the dovish mood, ECB board member Fabio Panetta on Wednesday said the ECB should not reduce the pace of asset purchases as the economic recovery is in an early phase and inflation remains too low.

Germanys 10year yield was down nearly 2 basis points to 0.18 at 0715 GMT, far below the twoyear highs hit at 0.074 a week ago.

Italys 10year yield fell nearly 3 bps to 0.94. It has fallen 17 basis points from May 20, in the biggest fivesession falling streak since July 2020.

The closely watched spread between Italian and German 10year bond yields effectively the risk premium on the Italian debt was at 112 bps, from nearly 125 bps last…

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