Eurozone periphery bonds trend higher after June CPI inflation meets expectations; ECB policy decision in focus

The Eurozone periphery bonds trended higher Monday after reading the zone’s consumer price-led inflation for the month of June, which met market expectations. Also, investors are eyeing the European Central Bank’s (ECB) monetary policy decision, scheduled to be held on July 20, which will add further direction to the debt market.

The benchmark German 10-year bond yields, which moves inversely to its price, fell 1 basis point to 0.58 percent, the French 10-year bond yields slumped 1-1/2 basis points to 0.84 percent, Irish 10-year bond yields plunged 3-1/2 basis points to 2.26 percent, Italian also down 3-1/2 basis points to 2.25 percent, Netherlands 10-year bond yields lower nearly 1-1/2 basis points to 0.71 percent, Portuguese equivalents struggled 3-1/2 basis points lower at 3.52 percent and the Spanish 10-year yields 4 basis points lower at 1.61 percent by 09:10 GMT.

Annual consumer prices in the eurozone rose 1.3 percent in June, according to a second reading from statistics agency Eurostat which came in line with an initial estimate. Inflation fell back from 1.4 percent in May having spiked at a three-year high of 1.9 percent in April. Further, core inflation, rose from 0.9 percent to 1.1 percent in June.

The main event in Europe will come on Thursday with the latest policy announcement from the ECB. At the June meeting, the Governing Council made a small but substantive amendment to its forward guidance, dropping its long-standing suggestion that interest rates might possibly be lowered further, which arguably represented a first tightening of the monetary stance since Trichet’s ill-judged rate hikes in 2011.

However, the ECB maintained other elements of its recent guidance, notably its insistence that rates are expected to remain at current levels “well past the horizon of [QE]”, and also its bias towards a possible further increase in QE in terms of volume and/or duration. Subsequent to that meeting, Draghi made his upbeat speech in Sintra, where he insisted that "deflationary forces have been replaced by reflationary ones".

Meanwhile, the pan-European STOXX 600 index was down 0.18 percent to 386.14, German DAX fell 0.50 percent to 12,567.50, France’s CAC 40 slipped 0.26 percent to 5,223.00 and the PSI20 Index traded 0.51 percent lower at 5,275.36 by 09:30 GMT, while at 09:00GMT, the FxWirePro's Hourly Euro Strength Index stood neutral at -19.41 (higher than +75 represents bullish trend). For more details, visit http://www.fxwirepro.com/currencyindex

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