German yields slip off 3-week highs as supply-induced selloff wanes

Traders will be watching for the U.S. initial jobless claims later in the day, with economists polled by Reuters expecting a fall. Italy was auctioning three-year, seven-year and 30-year bonds on Thursday, with two-year BTP yields trading down 1.7 bps at -0.08% ahead of the event.

German yields slipped off three-week highs hit in the previous session as traders began to feel that a Bund selloff on the back of the largest-ever 10-year U.S. Treasury auction might have been an overreaction.

"Yesterday's move was quite big but wasn't really based on anything," said Lyn Graham-Taylor, fixed income strategist at Rabobank, partly blaming thin market liquidity in August. "It doesn't completely surprise me that, on opening this morning, it would marginally be the other way," he said.

Graham-Taylor said bond markets were likely to stabilise from here and stall, because "the bottom of the economy is as low as people thought, but everyone thinks the recovery is going to be slower than they thought". Benchmark German 10-year government yields were down 1.2 basis points at -0.45%, having risen the day before to -0.42%, with 30-year yields falling 1.6 bps to -0.02% .

The German 30-year bond yield turned briefly positive on Wednesday after a measure of underlying inflation increased by the biggest margin in more than 29 years in the United States. The U.S. is due to sell $26 billion in 30-year bonds on Thursday.

German consumer prices, harmonised for comparability with other European countries, were confirmed down 0.5% in July from the previous month and unchanged from the previous year, the Federal Statistics Office said on Thursday. Traders will be watching for the U.S. initial jobless claims later in the day, with economists polled by Reuters expecting a fall.

Italy was auctioning three-year, seven-year and 30-year bonds on Thursday, with two-year BTP yields trading down 1.7 bps at -0.08% ahead of the event. Yields in other tenors were flat. Two Federal Reserve members are lined up for speeches on Thursday - Raphael Bostic and Lael Brainard - but analysts do not foresee these as major events.

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