Euro zone yields flat before U.S. inflation data, after hitting three-week low
By Harry Robertson
LONDON, Oct 12 (Reuters) - Euro zone government bond yields were little changed on Thursday after earlier falling to their lowest in around three weeks, as investors digested the minutes from the last Federal Reserve meeting before the release of U.S. inflation data.
Germany's 10-year bond yield, the benchmark for the euro zone, fell to 2.687%, the lowest since Sept. 22. It then pared its fall and was last 1 basis point (bp) higher at 2.724%.
The Italian 10-year bond yield was down 1 bp at 4.656%, after falling to its lowest since Sept. 25 at 4.631% earlier on Thursday.
"The lower opening tracks what USTs (U.S. Treasuries) have been doing in the overnight session," said Benjamin Schroeder, senior rates strategist at ING.
"We had the FOMC minutes which suggested officials want to move more carefully and of course the geopolitical backdrop remains tense."
Minutes from the Federal Reserve's Open Market Committee's (FOMC) last meeting, released on Wednesday, showed officials adopted a relatively cautious stance in September, despite suggesting at the time that one more rate hike was likely.
"The minutes revealed that several members considered that the policy rate is likely to be at or close to its peak," said Jussi Hiljanen, head of rates strategy at lender SEB.
Germany's 2-year bond yield, which is sensitive to changes in interest rate expectations, was 1 bp higher at 3.109%.
Minutes from the European Central Bank's September meeting will be released on Thursday at 1130 GMT. The central bank raised rates last month to 4% but signalled it was likely finished hiking.
Investors' focus will be on the U.S. inflation data on Thursday, which is expected to show that the consumer price index (CPI) rose 3.6% in September, easing from a 3.7% increase in August. The figures are due out at 1230 GMT (8.30 a.m. ET).
The U.S. 10-year Treasury yield - which sets the tone for other yields around the world - has dropped around 33 bps since surging to a 16-year high of 4.887% last week.
Analysts say a number of factors have been weighing on bond yields, including central bank officials talking down the need for further interest rate increases, and nervousness about the Israel-Hamas conflict spreading more widely in the Middle East.
Caution has been the watchword for Fed officials of late, causing markets to dial down bets that interest rates will rise again. Fed governor Christopher Waller said on Wednesday that the recent rise in bond yields is "going to do some of the work for us" by pushing up borrowing costs.
The closely watched gap between German and Italian 10-year bond yields was last 2 bps narrower at 192 bps on Thursday. It hit its widest since January last week at 209.2 bps.
ECB policymaker and Greek central bank governor Yannis Stournaras told Reuters that the ECB should not stop its bond purchases early because they may still be needed to calm jittery markets. Yet he said it is down to governments, including Italy's, to keep investors on side.
(Reporting by Harry Robertson; Editing by Elaine Hardcastle and Susan Fenton)
