Eurozone periphery bonds gain following firmness in benchmark German bunds

The Eurozone periphery bonds strengthened Monday following gains in the benchmark German bunds. The French 10-year bond yields, which moves inversely to its price, fell 4-1/2 basis points to 0.63 percent, Irish 10-year bonds yield dipped 3-1/2 basis points to 0.73 percent, Italian equivalent slid 8-1/2 basis points to 1.74 percent, Netherlands 10-year bonds yield ticked 4-1/2 basis points lower to 0.30 percent, Portuguese equivalents down nearly 8 basis points to 3.68 percent and the Spanish 10-year bonds yield tumbled 6-1/2 basis points to 1.32 percent by 10:30 GMT.

We foresee that the bund prices will keep drifting between small gains and losses in thin trading due to global New Year holiday. Also, thin trading volumes were observed as markets in Japan, China, Hong Kong, the U.S. and the UK, among others, will be closed for the day on account of New Year's Day.

The European Central Bank (ECB) governing council member Benoît Coeure said the ECB's assessment of inflation risks is shifting; headline rates are accelerating due to oil/commodity prices, though a rise in core inflation to above 1 percent is still awaited. Doesn't exclude upside inflation risks in 2017 if the "reflationary impact of the new US policies dominates". He can be confident that the Eurozone economy will be resilient in 2017. Yet the ECB's December decision to reduce QE was an "adjustment, not an exit; there is no plan to cut asset purchases to zero".

In term of recent economic data, Germany’s December Markit/BME final Manufacturing PMI came in at 55.6, a tad higher than 55.5 market expectations. Also, the final Eurozone-wide manufacturing PMI for December was left unrevised, as compared to its preliminary estimate of 54.9, matching expectations. This figure was notably up from 53.7 in November to a 5-year high.

Rimsevics, Latvia's central bank governor, blamed a lack of progress on economic reform and on the European Commission's stimulus package for curbing confidence and lending despite the ECB's massive injection of cash since 2015, Reuters reported.

The ECB has extended its bond-buying scheme until the end of 2017 saying it was yet to be convinced that inflation was heading to its target of almost 2 percent, they added.

Meanwhile, the pan-European STOXX 600 index was up 0.47 percent, the DAX traded 0.77 percent higher, the PSI20 Index climbed 0.67 percent and the CAC-40 rose 0.42 percent by 11:00 GMT. While at 11:00 GMT, the FxWirePro's Hourly Euro Strength Index stood neutral at +0.41 (higher than +75 represents bullish trend).