Eurozone yields rise as caution deepens ahead of ECB

Eurozone bond yields edged up on Tuesday as a bounce in oil prices from five-year lows cooled speculation that the European Central Bank might further ease monetary policy this week.

Falling inflation expectations and hints from Mario Draghi last month that policymakers were readying government bond purchases have sent yields to new record lows across the bloc.

Markets are expecting the ECB to make a move on monetary policy in March. December is seen as too soon for a consensus to have built within its governing council.

Policymakers are seen as wanting to take time to assess the impact of their purchases of covered bonds and asset-backed securities, and the take-up of new ECB loans to banks on Dec. 11, another project to pump money into the economy.

A Reuters poll on Monday showed no one expects action at this week’s meeting.

German 10-year Bund yields, which set the standard for eurozone borrowing costs, rose 1 basis point to 0.73 percent, having fallen to an all-time low of 0.69 percent on Monday.

“The rebound in oil prices yesterday eased a bit the pressure on the inflation outlook and the urgent need for the ECB to act has disappeared in the background,” Rabobank market strategist Emile Cardonat said.

Brent crude steadied below $32 after rising about 4 percent on Monday.

One-year inflation swaps rose to zero again after falling into negative territory on Monday, according to data from brokerage BGC. Measures of longer-term inflation expectations also rose slightly.

Lower-rated eurozone bond yields also bounced from record lows. Spanish 10-year bond yields rose 4 basis points to 1.89 percent, while Italian yields edged 2 basis points higher to 2.04 percent.

“Any action such as implementing government bond purchases is very unlikely at this stage,” said Gary Jenkins, chief credit strategist at LNG Capital.

“The ECB needs time to prove that its current policies will not increase the size of its balance sheet sufficiently before taking any new measures.”

Greek yields bucked the trend, extending this week’s fall by another 20 basis points to 7.91 percent after Athens offered to raise the value-added tax for hotels and discuss pension reforms to appease EU/IMF lenders.