ECB's Coeure plays down recent bond yield rise

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05/16/2017 | 08:00 pm
FRANKFURT (Reuters) - The European Central Bank is not concerned by a recent rise in euro zone bond yields as they reflect improved growth prospects, receding fears of deflation and increased risks from outside the bloc, Executive Board member Benoit Coeure said on Tuesday.

The ECB accepts normal yield fluctuations and concluded that only a quarter of the rise since September is due to expectations of tighter ECB policy, so financial conditions remain supportive of growth, Coeure added.

With mainstream candidates winning the Dutch and French elections, bond yields have ticked higher as markets now price in improved growth, a rebound in inflation and an eventual end to the ECB's unprecedented stimulus measures.

But some have also been concerned that the rise -- 60 basis points in 10-year German yields since September lows -- could make the ECB uncomfortable as it seeks to keep borrowing conditions exceptionally low.

"The recent measurable increase in long-term yields has not affected our monetary policy stance: current financial conditions remain highly supportive of the ongoing recovery," Coeure said.

"We don’t want to over-interpret any uptick or downtick that we observe, but rather accept as a fact that some volatility is natural and healthy for the market to function," he said.

The ECB has kept rates in negative territory for years and plans to buy 2.3 trillion euros worth of bonds by the end of the year to keep borrowing conditions low, revive investment, kick-start growth and eventually rekindle inflation.

"Only around a quarter of the change in yields (since September) reflect changes in the expected future policy path," Coeure said. "Expectations regarding our monetary policy have, on balance, had a stabilising effect on yields, according to our analysis."

He added that improved inflation expectations also contributed to the yield rise, a positive for the ECB, as have improvements in domestic growth prospects.

Concerns about an increase of bond supply outside the euro zone also played a factor, he said.

(Reporting by Balazs Koranyi; Editing by Gareth Jones)

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