Eurozone periphery bonds trade mixed ahead of ECB policy decision

The Eurozone periphery bonds traded mixed Thursday ahead of the European Central Bank monetary policy decision, where there is a chance of another small deposit rate cut.

The French 10-year bond yields, which moves inversely to its price, rose 1 basis point to 0.117 percent, Irish 10-year bonds yield dipped 3 basis points to 0.349 percent, Italian equivalent ticked 1-1/2 basis points lower to 1.062 percent, Netherlands 10-year bonds yield climbed 1 basis point to -0.007 percent, Portuguese equivalents inched 1-1/2 basis points lower to 2.954 percent, Spanish 10-year bonds yield also tumbled 1-1/2 basis points to 0.913 percent by 10:30 GMT.

The European Central Bank monetary policy meeting that concludes with President Mario Draghi's press conference is scheduled to take place on Thursday by 12:30 GMT and it is widely expected to result in a decision to extend the central bank's quantitative easing programme.

Also, we foresee that the President Mario Draghi is likely to make some technical adjustments to it, but little of broad market significance. The President will reiterate the ECB's easing bias but will probably stop short of signalling any further action.

We no longer expect a rate cut and think that a decision to extend quantitative easing beyond March 2017 will be taken only in December. In addition, we think the staff will assume only a modest 0.2 percentage point hit to the level of GDP from the Brexit vote, taking a tenth off 2017 and a bit off 2018, said JP Morgan in its research report.

The Eurozone government bonds have been closely following developments in oil markets because of their impact on inflation expectations, which are well below the European Central Bank's target. Crude oil prices rebound after the US crude stocks surprisingly plunged by 12.1 million barrels last week, data from the American Petroleum Institute showed after market settlement on Wednesday, compared with expectations for an increase of around 200,000 barrels. The International benchmark Brent futures rose 1.56 percent to $48.73 and West Texas Intermediate (WTI) jumped 1.67 percent to $46.26 by 10:00 GMT.

On Tuesday, the third reading of the second-quarter Eurozone GDP growth estimate is reaffirmed once again at 0.3 percent q/q, same as its first two estimates and identical to what was predicted by the market consensus and proving that the downward revision to Finland's second-quarter GDP growth rate to zero q/q from 0.3 percent previously recorded was too small to have any effect.

The annual rate is also unchanged, at 1.6 percent y/y, and we continue to expect a shift down in gear in average quarterly GDP growth in the second half of 2016 from an average 0.4 percent per quarter in the first half, to an average 0.25 percent to 0.3 percent per quarter in the second half.

Meanwhile, the pan-European STOXX 600 index was up 0.07 percent and the euro-area blue-chip gauge the STOXX 50 climbed 0.01 percent, the PSI20 Index rose 0.16 percent. The DAX traded 0.20 percent lower and the CAC-40 fell 0.03 percent by 10:30 GMT.