Euro zone bond yields slip, shrugging off inflation

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LONDON, June 2 Reuters Euro zone government bond yields slipped one to two basis points lower in early trading on Wednesday, edging down ahead of the European Central Bank meeting next week.

Yields were little changed overall on Tuesday, even after HICP data showed euro zone inflation rose to 2 in May a sign that markets were confident the European Central Bank would not decide to slow the pace of its bond buys when it meets on June 10.

The ECB has said a nearterm rise in inflation is driven by oneoff factors and longterm price pressures remain subdued, meaning stimulus will still be needed. Yields have fallen in the last week in response to dovish comments from ECB officials.

At 0719 GMT, Germanys benchmark 10year yield was down 2 basis points at 0.193.

Italys 10year yield was down by 2 bps at 0.8825, heading towards Tuesdays lowpoint of 0.876, which was the lowest in more than 3 weeks.

A gauge of the markets longterm euro zone inflation expectations the fiveyear, fiveyear breakeven forward was at 1.5939. In the previous session, it rose to 1.61, its highest in nearly two weeks, as oil prices topped 70.

Especially with core HICP in line with expectation and expected to stay below 1 in coming months, inflation fears seem contained for now with breakevens not widening despite firm oil prices, wrote Commerzbank rates strategist Michael Leister in a note to clients.

In a quiet day for economic data, markets will pay attention to any comments from central bank…

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