Eurozone periphery bonds mixed ahead of ECB’s monetary policy decision

The Eurozone periphery bonds traded slightly mixed Thursday as investors wait to watch the European Central Bank’s (ECB) monetary policy decision, scheduled to be later today.

The benchmark German 10-year bond yields, which moves inversely to its price, rose 1 basis point to 0.55 percent, the French 10-year bond yields also climbed nearly 1-1/2 basis points to 0.81 percent, Irish 10-year bond yields hovered around 0.85 percent, Italian down nearly 1 basis point to 2.18 percent, Netherlands 10-year bond yields higher by 1 basis point to 0.67 percent, Portuguese equivalents surged 1-1/2 basis points to 3.07 percent and the Spanish 10-year yields traded flat at 1.53 percent by 09:40 GMT.

At the June meeting, while the ECB dropped its long-standing suggestion that interest rates might possibly be lowered further, it maintained other elements of its recent guidance, notably its insistence that rates are expected to remain at current levels “well past the horizon of [QE]”, and also its bias towards a possible further increase in QE in terms of volume and/or duration.

With President Mario Draghi likely to maintain the broadly upbeat tone of Sintra, it might seem appropriate for that easing bias on QE to hit the cutting room floor today. However, with the ECB still wary of triggering a taper tantrum – and the recent increase in bond yields and euro appreciation representing a modest tightening of financial conditions which might be considered unhelpful as it strives to push underlying inflation higher – that text might be left in the statement one more time. 

However, consistent with Draghi’s signal last month that the ECB will in due course “adjust its parameters” of policy, he is expectedto announce that the Governing Council has tasked the relevant ECB sub-committees to study over the summer options for QE from next January, once the existing commitment to buy €60bn of assets per month until year-end has been fulfilled.

Meanwhile, the pan-European STOXX 600 index was up 0.16 percent to 386.15, German DAX rose 0.44 percent to 12,507.00, France’s CAC 40 climbed 0.37 percent to 5,235.30 and the PSI20 Index traded 0.29 percent higher at 5,317.69 by 09:40 GMT, while at 09:00GMT, the FxWirePro's Hourly Euro Strength Index remained neutral at 64.24 (higher than +75 represents bullish trend). For more details, visit http://www.fxwirepro.com/currencyindex

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