UPDATE 1-Euro zone bond yields edge down as growth worries overshadow inflation bounce
Consumer price growth in the 19-member euro zone rose to 2.2 percent in October from 2.1 percent last month, preliminary data on Wednesday showed, holding above the European Central Bank's target of just below 2 percent for the fifth month running.
Even underlying inflation picked up, with the measure than excludes food and fuel prices rising to 1.3 percent from 1.1 percent.
But the numbers failed to put a dent in fixed income markets -- something analysts attributed to a focus on an uncertain economic outlook.
Data on Wednesday showed German retail sales fell 2.6 percent year-on-year in September. That followed Tuesday's weaker-than-expected euro zone economic growth numbers for the third quarter and weak GDP data for Italy -- the euro zone's third-biggest economy.
"At the moment it looks like the market is paying more attention to the activity data such as Italian GDP and the retail sales data this morning," said Mizuho rates strategist Antoine Bouvet.
Having risen 2-3 bps in early trade as stock markets opened on a firm note, most 10-year bond yields in the lower were flat to a touch lower by mid-day.
The recent economic growth data is no reason to change the policy outlook, the ECB's Ewald Nowotny said on Wednesday.
Germany's 10-year bond yield was steady at 0.37 percent , off session highs of 0.40 percent.
It was set to end October down around 10 bps - reflecting concern about volatility in Italy, recent weakness in world stocks and growing worries about the economic growth outlook.
"If you would have told me at the start of 2018 that Bund yields would be where they are today, I would said you are crazy," said Brian Giuliano, vice president, portfolio management for fixed income at Brandywine Global in Philadelphia. "One reason for this fall in yields is that growth has come off throughout 2018, another is the populist challenges in countries such as Italy."
In a note on Wednesday, HSBC fixed income strategist Wilson Chin said 10-year Bund yields could fall to 25 bps. Italian bond yields were down 5-8 bps as a recovery in risk appetite spilled over into the Italian bond market.
Analysts said reports suggesting the Italian government may take longer to implement its plans to widen the country's budget deficit may have helped a recovery in Italian bonds although the moves were relatively small given the scale of selling in recent months.
Italy remains the euro zone's weakest bond market with 10-year bond yields set to end October around 27 basis points higher.
(Reporting by Dhara Ranasinghe Editing by Andrew Heavens and Angus MacSwan)
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