AMSTERDAM/LONDON- Euro zone bond yields dipped on Thursday amid uncertainty over the bloc's COVID-19 vaccination programme, while minutes of the European Central Bank's March meeting showed policymakers were ready to reduce bond purchases if conditions allowed.
Safe-haven euro zone bond yields ticked down, with Germany's 10-year yield, the benchmark for the bloc, losing around 1.7 basis point at -0.35%.
Italian 10-year bond yields were down 4 basis points at 0.66%, keeping the closely watched risk premium with Bunds below the four-week high it touched at over 100 basis points on Wednesday.
Monthly bond buys under the ECB's 1.85 trillion-euro Pandemic Emergency Purchase Programme (PEPP) jumped by over a fifth last month, enough to stabilize nominal bond yields and push inflation-adjusted yields back to their early-year lows.
The central bank ramped up buying of sovereign bonds after a surge in U.S. Treasury yields lifted borrowing costs in the bloc and threatened Europe's tentative recovery.
Sources told Reuters at the time that hawkish policymakers were sceptical about increasing the purchases and some saw rising nominal bond yields as a potentially welcome sign of economic recovery.
Minutes of the ECB's March meeting showed policymakers debated a smaller increase in bond purchases and agreed to front-load the buying this quarter on condition it could be cut later if conditions allowed.
"It was underlined that the flexibility embodied in the PEPP was symmetric, implying that the purchase pace could be increased and decreased according to market conditions," the ECB said.
Repeating the bank's overall standing guidance, ECB President Christine Lagarde said on Thursday that the 1.85 trillion euros set aside may not have to be spent in full but could also be increased depending on market conditions.
Lagarde also said that while the resurgent pandemic would weigh on euro zone growth over the coming months, the recovery was expected to pick up once lockdowns are lifted.
Lagarde's comments came as data showed euro zone producer prices rose at an accelerated year-on-year pace in February as the cost of energy and intermediate goods went up, underlining expectations of faster consumer price growth in the coming months.
Euro zone consumer inflation jumped in March to 1.3%, taking another step higher in what is likely to be a temporary but sharp climb that may put consumer price growth above the European Central Bank's target of near 2% later this year.
The ECB has predicted the surge, warning that inflation may even exceed its target by the close of the year, but has promised to look past what it expects to be a temporary increase in its policy decisions.
Worries about the rollout of COVID-19 vaccines and its consequence for the European economy have risen after European regulators found a potential link between AstraZeneca's vaccine and rare brain blood clots.
The setback for the vaccine, a key component of the bloc's inoculation efforts, comes as the euro area grapples with a new wave of the virus. Spanish regions tightened lockdowns on Wednesday and Germany's chancellor supported a tougher lockdown.
(Reporting by Yoruk Bahceli and Julien Ponthus; editing by John Stonestreet, Larry King) ((Yoruk.Bahceli@thomsonreuters.com; +44 20 7542 7571; Reuters Messaging: firstname.lastname@example.org))