* Euro zone periphery govt bond yields tmsnrt.rs/2ii2Bqr
LONDON, May 20 (Reuters) - Italian bond yields held near multi-week lows early Wednesday, undeterred by the prospect of a hawkish counter-proposal to a plan for a recovery fund offered by France and Germany.
A group of European Union states will propose funding coronavirus recovery efforts with loans, not grants, as the Franco-German plans for a 500 billion-euro fund call for, Austrian Chancellor Sebastian Kurz said on Tuesday. His Dutch, Danish and Swedish counterparts agree, Kurz said.
But Italian and southern European bond yields - which tumbled after the announcement of the Franco-German proposal on Monday - showed little reaction.
Italy’s 10-year bond yield was up only 2 basis points at 1.66%, near the five-and-a-half-week lows reached after France and Germany made their proposal. The risk premium it pays - the gap with Germany’s 10-year yield - was at 211 basis points, less than 10 bps higher than Tuesday’s five-week lows.
“This suggests that markets remain focussed on Merkel’s u-turn regarding grants (instead of loans) and hopes that this marks the starting point towards proper joint issuance,” Commerzbank analysts told clients.
Safe-haven German 10-year yields were unchanged at -0.46% after rising 6 basis points this week.
Elsewhere, focus will be on the primary market. Germany is scheduled to raise 4 billion euros via a re-opening of a 10-year bond. France is scheduled to issue up to 11.25 billion euros of three-year, six-year and inflation-linked bonds.
Analysts will also be watching the allotment of the European Central Bank’s first PELTRO - its emergency loan scheme announced last month as part of its efforts to cope with the coronavirus pandemic - although a relatively small take-up is expected. (Reporting by Yoruk Bahceli, editing by Larry King)
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