Euro zone bond yields held near one-month highs on Monday, showing little reaction as German inflation rose to a fresh 13-year peak.
Preliminary data on Monday showed German inflation increased to 3.4% year-on-year and 0.1% month-on-month in August.
"The lack of reaction is due to the fact that the bond market reads these figures as transitory," said Althea Spinozzi, fixed income strategist at Saxo Bank.
The rise in German annual inflation was mainly driven by base effects such as a temporary reduction in value added tax last year, she added.
"Monthly figures are within expectations and moderate," Spinozzi added, noting that the monthly rise in prices was the lowest since November 2020, suggesting inflation may be cooling.
Yields moved only marginally on both sides of the Atlantic.
Markets were calm in the aftermath of U.S. Federal Reserve Chairman Jerome Powell's speech on Friday, which traders took to suggest a tapering of stimulus measures was unlikely until later in the year, sending U.S. Treasury yields falling.
Earlier on Monday, Spanish inflation came in at 3.3% year-on-year, far above the 2.9% and 0.1% expected by a Reuters poll.
Other data showed euro zone economic sentiment dipped from record highs in August, though selling price expectations in industry hit a record in August, heralding likely future inflationary pressures.
Bond markets are closely focused on inflation readings this year. Though inflation in the euro area came in above the European Central Bank's 2% target in July and upcoming readings - starting with the 2.7% year-on-year figure expected for August on Tuesday - are likely to show it increase further, it is largely seen as transitory.
By 1301 GMT, Germany's 10-year yield, the benchmark for the euro area, unchanged at -0.42%, just below last week's one-month high at -0.401%, after rising marginally earlier in the session.
Italian 10-year yields were also unchanged, putting the closely watched gap with German 10-year yields at 105 bps.
Earlier in the session, ECB policymaker and Bank of France governor Francois Villeroy de Galhau said the bank should take account of a recent improvement in financing conditions in discussing the future of its pandemic emergency bond purchases.
Bond issuance picks up this week, with 29.5 billion euros ($34.8 billion) of issuance expected from the Netherlands, Italy, Germany, France and Spain - the highest since mid-July - according to Commerzbank analysts.
But 48.3 billion euros of redemptions and coupon payments from Germany and Italy will keep net supply negative, they added.
($1 = 0.8477 euros) (Reporting by Yoruk Bahceli Editing by Mark Potter and Andrew Heavens)
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