LONDON, Jan 25 (Reuters) - Euro zone bond yields edged
higher on Tuesday, tracking a tentative rebound by European
equity markets after a deep sell-off that encouraged investors
to buy safe-haven assets in sovereign debt markets.
Borrowing costs across the common currency bloc fell sharply
on Monday as tensions between Russia and the West over Ukraine
and rate-hike worries linked to Wednesday's U.S. Federal Reserve
policy decision triggered a selling spree in global stocks.
But while a semblance of calm seemed to be returning to
European bourses, sentiment remained fragile and Wall Street
opened deep in the red.
At 1606 GMT, Germany's 10-year Bund yield was up 1.3 basis
points on the day at -0.085%, above almost
three-week lows hit the previous session.
Analysts said the near-term outlook for bond markets was
positive, with geopolitical worries expected to support
safe-haven debt for now.
"The downdraft in global stock markets, on the back of
geopolitical tensions and Fed tightening worries, remains the
main driver of government bonds this week," said ING senior
rates strategist Antoine Bouvet.
"None of these are valid long-term drivers for a rates
forecast, but we think they will continue to push yields down in
Markets are positioned for four U.S. rate rises to contain
sticky inflation and for one rate hike by the European Central
Bank by year-end.
Philip Lane, the ECB's chief economist, told a Lithuanian
newspaper that the central bank would tighten policy if
inflation were seen holding above its target but said such a
scenario appeared less likely for now.
"If we saw the data coming in to suggest that inflation
would be too high relative to 2%, then of course we would
respond," Lane told Verslo inios.
Italy's 10-year bond yield was flat at around 1.35%
after lawmakers failed to elect a new president in
an initial secret ballot on Monday.
Euro zone bond markets also faced some selling pressure as
they absorbed new supply. The Netherlands sold 30-year bonds and
France sold a new 30-year inflation-linked bond via a syndicate
Orders for the new French bond were in excess of 23.5
billion euros, according to lead manager memos seen by Reuters'.
Separately, data published on Tuesday showed the ECB bought
a net 13.424 billion euros ($15.13 billion) worth of assets last
week as part of its quantitative easing programme, below the
25.922 billion euros it purchased a week earlier.
Germany's Ifo survey showed business morale in Europe's
biggest economy improved in January for the first time in seven
months, highlighting better growth conditions that could allow
the ECB to dial back its monetary support.
(Reporting by Dhara Ranasinghe; additional reporting by Julien
Ponthus; Editing by Gareth Jones)