February 5, 2020 / 8:51 AM / 17 days ago

Euro zone yields edge higher as investors gauge fallout from coronavirus

* Yields stabilise after rising on Wednesday

* Analysts say risk appetite returning but some caution

* Euro zone periphery govt bond yields tmsnrt.rs/2ii2Bqr

By Tommy Wilkes

LONDON, Feb 5 (Reuters) - Euro zone government bond yields edged higher on Wednesday as investors studied the economic fallout from the coronavirus outbreak in China.

The moves suggested some optimism, after a big rise in bond yields on Tuesday following a solid recovery in risk appetite across asset classes as markets welcomed more Chinese stimulus to counteract the damage from the fast-spreading new virus.

In early trading, the 10-year German government bond yield bobbed around the -0.40% level, before rising 2 basis points to -0.386%.

Other core euro zone bond yields were also slightly higher.

China and other countries have imposed travel restrictions to try to contain a new virus that emerged in the central Chinese city of Wuhan late last year, slamming the brakes on manufacturing and tourism in the world’s second-largest economy.

But many investors argue that any slowdown will be temporary and that Chinese policy steps are reason to remain optimistic about the growth outlook.

Asian shares rallied on Wednesday, while European bourses were generally stronger.

Analysts said that, as well as the China virus, bond investors would be following U.S. employment data due out later.

“For today, the market focus in the rates universe will be on the ADP employment report, which should provide an initial indication of Friday’s labour market report, and the ISM non-manufacturing index, which will be watched for a confirmation of the strong surprise in the ISM manufacturing index from the beginning of the week,” Unicredit analysts said in a note.

In the euro area there are speeches from European Central Bank President Christine Lagarde and ECB Chief Economist Philip Lane.

The final purchasing managers index surveys for the euro zone are due at 0900 GMT, although with the flash numbers reported already the impact on markets will likely be small. December euro zone retail sales data is due at 1000 GMT.

Yields in the euro zone periphery fell marginally in early trading. The Italian 10-year yield was 1 basis point lower at 0.938%.

After a busy few weeks for new euro zone government debt issuance, there was no new supply expected on Wednesday. (Reporting by Tommy Reggiori Wilkes; Editing by Alex Richardson)

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