Eurozone periphery bonds plunge following rally in benchmark bund yields, U.S. Treasuries

The Eurozone periphery plunged Thursday following a rally in the benchmark bund yields. Also, bond prices tracked a retreat in the U.S. Treasuries.

The French 10-year bond yields, which moves inversely to its price, rose 6 basis points to 0.429 percent, Irish 10-year bonds yield climbed 2 basis points to 0.587 percent, Italian equivalent bounced 4-1/2 basis points to 1.578 percent, Netherlands 10-year bonds yield inched 6 basis points higher to 0.254 percent, Portuguese equivalents up 4 basis points to 3.255 percent and the Spanish 10-year bonds yield jumped 4 basis points to 1.180 percent by 10:20 GMT.

German 10-year bund yields touched its highest levels in five months to 1.4 percent as inventors moved away from safe-haven buying to riskier assets including equities and crude oil amid rising speculations of the Federal Reserve interest rate hike.

Moreover, the ECB is all but certain to continue buying bonds beyond March 2017, according to central bank sources cited by Reuters; but whether the current volume would be maintained has not been decided and will depend on incoming economic data.

The ECB will also relax constraints to ensure enough supply, with possibilities including raising issue limits; lowering the deposit rate floor; and/or deviating from the capital key (i.e. GDP-weighted allocations).

None of this is new or surprising. But the uncertainty expressed about a full extension of QE (i.e. at the 80 billion Euros per month pace) which is what we expect to be decided could bring back some concerns about possible tapering.

In addition, the Eurozone bonds have been closely following developments in oil markets because of their impact on inflation expectations, which is well below the European Central Bank's target. Crude oil prices recovered from previous losses on fresh buying and concerns over Venezuela's stability. The International benchmark Brent futures rose 0.84 percent to $50.40 and West Texas Intermediate (WTI) jumped 0.51 percent to $49.43 by 08:30 GMT.

Meanwhile, the pan-European STOXX 600 index was down 0.27 percent and the euro-area blue-chip gauge the STOXX 50 dipped 0.34 percent, the DAX traded 0.25 percent lower, the PSI20 Index tumbled 0.41 percent and the CAC-40 fell 0.51 percent by 10:20 GMT.