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by 4 minutes Read about the yields on government bonds in the Eurozone’s periphery. tmsnrt.rs/2ii2Bqr (Updated with the ECB’s conclusion on the strategy review) Reuters, July 8 – On Thursday, euro zone bond yields fell further as a global bond rally persisted, while the European Central Bank’s move to embrace a symmetrical inflation target received little attention. In a largely anticipated move, the ECB established its medium-term inflation objective at 2%, abandoning a prior phrasing of “below but near to 2%,” which gave the impression that the euro zone’s central bank was more concerned about price growth beyond its target than below it. The implementation of a symmetrical inflation target, in which a central bank responds to both undershoots and overshoots of inflation, has little influence on borrowing costs in the euro area, which are held low by the ECB’s monetary support. The lack of market reaction, according to Arne Petimezas, analyst at AFS in Amsterdam, “was clearly evident what they were going to do.” Although the ECB stated that its aim would remain symmetric, it made no mention of tolerating an inflation overshoot following long periods of ultra-low price rise, which could be a disappointment for investors hoping for a commitment that would ensure stimulus well into the recovery. Credit Agricole CIB’s ECB strategist Louis Harreau said the outcome was slightly more “hawkish” than he expected. “Something more committing,” Harraeu suggested, “such an explicit recompense for past under-shooting.” On Wednesday, bond rates in the euro zone continued to decrease, following a global bond rally led by Chinese and US government bonds. By 0738 1128 GMT, German 10-year yields, the euro zone benchmark, had fallen 4 basis points to -0.33 percent, led by 10-year yields in the United States, which had fallen nearly 5 basis points. The risk premium on Italian bonds – a key beneficiary of ECB stimulus – widened to 108 basis points, the widest since June 21. Italian bond yields lagged and 10-year yields rose a basis point, pushing up the risk premium on Italian bonds – a key beneficiary of ECB stimulus – widened to 108 basis points, the widest since June 21. Additional hints from ECB President Christine Lagarde are expected at a press conference at 1230 GMT. “It could even be disappointing if (ECB President Christine Lagarde) doesn’t offer any more dovish soundbites or if they stop there,” Antoine Bouvet, senior rates strategist at ING in London, said. In terms of how the target might be met, UniCredit analysts are interested in seeing if the ECB would allow its conventional asset purchases to deviate from self-imposed limits on how much of each issuer’s debt it can buy – a flexibility that defines the ECB’s pandemic emergency bond purchases, which are set to slow later this year and expire in 2022. The ECB will incorporate climate change considerations into its monetary policy, including disclosure, risk assessment, and decisions on collateral and corporate sector asset purchases, in addition to revising its inflation target. The bond rebound this week, according to market participants, is the result of hedge funds unwinding bets on rising US Treasury yields once the 10-year benchmark dipped below 1.40 percent. (Yoruk Bahceli contributed reporting; Angus MacSwan and Raissa Kasolowsky edited the piece.)/nRead More

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