German bund yield holds near 2-1/2 yr lows as financial woes weigh

* Euro zone periphery govt bond yields

LONDON, Feb 11 (Reuters) – Fears of financial slowdown in Europe and plunging inflation expectations dominated morning commerce on Monday with Germany’s 10-year authorities bond yield holding near 0.10 %.

The yield on Germany’s 10-year Bund, seen as the chance free benchmark for the area, fell as little as 0.77 % on Friday, its lowest since October 2016, reflecting dire concern in bond markets about financial circumstances.

The prospect of one other U.S. authorities shutdown, in addition to issues that the presence of U.S. warships within the South China Sea would possibly disrupt the progress of commerce talks this week, and persevering with Brexit discussions, additionally weighed on threat urge for food.

Final week the European Fee stated it anticipated euro zone development would gradual to 1.three % this yr versus an earlier estimate of 1.9 %, whereas inflation is anticipated to be 1.four %, nicely wanting the European Central Financial institution’s goal of just under 2 %.

German knowledge additionally pointed to a slowdown, although ING analysts count on that forth quarter GDP knowledge, due on Thursday, ought to present that the bloc’s largest financial system prevented a technical recession.

China struck an upbeat notice on Monday as commerce talks resumed with the USA, but in addition expressed anger at a U.S. Navy mission by the disputed South China Sea.

If the negotiations don’t progress sufficiently by March 1, the USA has stated it intends to lift tariffs on $200 billion of imports from China to 25 % from 10 %.

“Commerce talks and shut down (worries) are actually weighing on markets,” stated Sebastian Fellechner, charges strategist at DZ Financial institution. “We don’t see any main actions due to the overall and international uncertainty.”

Core 10-year authorities bond yields within the bloc have been about two foundation factors greater in early commerce,, although analysts stated this was as a result of absence of any new knowledge or information, relatively than a return to threat taking. Within the periphery, Italian bonds have been outperforming, regardless of anticipated stress on the Italian authorities for additional fiscal adjustment following the European Fee’s revision downwards of its development forecast.

However analysts at ING stated the EU will wish to keep away from reopening the dialogue forward of EU parliamentary elections and as such don’t count on any motion on the Italian price range but.

Fitch is because of overview Italy’s credit standing on February 22.

The unfold of Italy’s 10-year debt over high rated Germany fell barely to 284 foundation factors having edged nearer to 300 foundation factors on Friday.

Italian authorities bond yields have been two to 5 foundation factors decrease throughout the curve although nonetheless held close to to latest highs. Traders offered Italian debt final week following an eight billion 30-year bond sale which led to a repricing of its present bonds.

Round 14 billion euros of recent provide is anticipated this week with the Dutch treasury resulting from kick of issuance with a brand new 2029 bond on Tuesday. (Reporting by Virginia Furness, Enhancing by William Maclean)

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