* Euro zone periphery govt bond yields - tmsnrt.rs/2ii2Bqr
By Dhara Ranasinghe
LONDON, May 11 (Reuters) - Borrowing costs across the euro area nudged higher on Monday, reflecting a slightly more upbeat tone in world markets as more countries look to restart their economies after coronavirus lockdowns.
Italian bond yields rose after Friday’s decision by Moody’s, to leave its rating on Italy unchanged at one notch above junk territory, as expected.
France was cautiously emerging from its lockdown on Monday and Britain on Sunday outlined plans to begin slowly easing its restrictions.
The quicker countries can restart their economies, the greater the chances of a swift rebound from the coronavirus economic shock.
“The focus is on the restarting economies and risk sentiment has a chance to recover further despite the dreadfully weak economic data for April,” said Commerzbank rates strategist Rainer Guntermann.
“With the weekend newsflow not sending any fresh warning signals, the air for Bunds is getting thinner and 10-year bond yields should rise above -0.5%.”
Germany’s benchmark 10-year Bund yield was up 1.5 basis points in early trade at -0.52%, not far off 1-1/2 month lows hit at the end of April.
Ten-year bond yields in Italy were also 1.5 bps higher, trading at 1.8%.
While Moody’s left Italy’s ratings unchanged on Friday, DBRS Morningstar cut Italy’s ratings trend to “negative” from “stable”.
DBRS blamed considerable uncertainty over the economic repercussions stemming from the COVID-19 outbreak, adding that Italy’s rating outlook remains weak.
Mizuho bond strategists said they expected the “fundamental weakness” of the periphery to persist.
“The trajectory towards a sub-IG (investment grade) rating for Italy remains inexorable, and it is only a matter of time before funds begin to move to pre-empt rating downgrades,” they said in a note.
A cut to junk territory by one of the three major agencies matters because of its implications for Italy’s position in major bond indexes. (Reporting by Dhara Ranasinghe Editing by David Goodman )