* Yields on government bonds from the periphery of the euro area tmsnrt.rs/2ii2Bqr
LONDON, June 1 (Reuters) – Eurozone bond yields drifted higher on Tuesday before a flash reading of inflation in the monetary bloc that could call into question an accommodating message from the European Central Bank.
Analysts polled by Reuters predict headline inflation rose to 1.9% in May from a year earlier, from 1.6% in April.
The ECB, which targets inflation close to but below 2%, stressed that a rise in inflation was likely triggered by one-off factors and that the long-term outlook remains favorable.
Still, the central bank’s dovish tone could be called into question by markets if inflation continues to rise in the coming months, analysts said.
Data on Monday showed inflation in Germany, the eurozone’s largest economy, rose 2.5% year-over-year in May, the highest since 2011.
Germany’s benchmark 10-year Bund yield was 1.2 basis points higher at the start of trading at -0.17%, but held below two-year highs last month. Most of the other 10-year Eurozone bond yields were slightly higher that day.
The focus was also on long-term inflation expectations, with oil prices surging above $ 70 amid optimism for stronger demand in the coming months.
On Monday, a key indicator of long-term market inflation expectations in the eurozone, the five-year and five-year breakeven point, climbed above 1.60% for the first time in nearly two weeks .
“Yesterday’s surprise German CPI rise, especially in the base rate on the back of the notorious tourist component, implies upside risks for the euro zone’s flash HICP (inflation) d ‘today,’ said Michael Leister, Commerzbank rate strategist.
“Combined with the continued upward pressure on oil, five-year breakevens have exceeded 1.60% and in the current environment, spreads seem more exposed than Bunds and resume inflationary anxiety given the implications of the ECB. “
Elsewhere, yields on 10-year US Treasuries rose 2.5bp in London trade, keeping eurozone debt markets on their feet.
Reporting by Dhara Ranasinghe; Editing by Nick Macfie