UPDATE 1-Waiting for ECB and Fed, eurozone bonds stick to familiar ground

Eurozone government bond yields were a fraction higher on Tuesday, refusing to budge from recent ranges ahead of this week's European Central Bank and Federal Reserve meetings.

Caution ahead of another round of U.S. tariffs on Chinese goods, due to take effect on Dec. 15, and Thursday's election in Britain supported demand for fixed income assets. That limited selling pressure following upbeat economic news. Germany's ZEW research institute said its monthly index on economic morale among investors rose to 10.7 from -2.1 a month earlier, much higher than forecast by economists.

A key market gauge of long-term eurozone inflation expectations rose to its highest in almost a month at 1.25% after the ZEW survey. "The significant rebound in expectations since August reflects partly an improving economic environment, and partly hopes for easing trade and Brexit tensions in 2020," said Berenberg economist Florian Hense.

"If these hopes come true, activity can pick up next year. However, the process will likely be gradual." Most 10-year bond yields across the euro zone were almost one basis point higher on the day..

Germany's benchmark Bund yield inched up to -0.29%, moving in a tight three basis point-range. Italian 10-year bond yields, which fell sharply on Monday, were flat on the day at 1.39%.

The Fed concludes a two-day meeting on Wednesday, with last Friday's booming U.S. jobs, report expected to give the U.S. central bank all it needs to stick to its plan not to cut interest rates further in the near future. In the euro zone, Christine Lagarde holds her first meeting and news conference as ECB chief on Thursday.

Signs that the worst may be over for the euro zone economy buys Lagarde some time, analysts say. Deutsche Bank has just raised its forecast for euro area growth from 0.8% to 1.0% for next year. "Expectations for policy action from the ECB and Fed are subdued," said Commerzbank rates strategist Rainer Guntermann. "Lagarde's communication style will be watched closely, but that's unlikely to lead to any repricing in bond markets."

Elsewhere, Japan's 10-year bond yield briefly touched 0% for the first time since March. A $122 billion stimulus package approved by Japan's cabinet last week has put some upward pressure on Japanese yields.

 

(This story has not been edited by Devdiscourse staff and is auto-generated from a syndicated feed.)