March 16, 2020 / 8:30 AM / in 20 days

Southern European, French bond yields jump as risk aversion follows Fed

LONDON, March 16 (Reuters) - Southern European bond yields jumped to multi-month highs on Monday after a second rate cut by the U.S. Federal Reserve and coordinated central bank action to address the impact of coronavirus drove investors away from risk assets.

Spanish and Portuguese 10-year bond yields rose to 9-1/2 month highs at 0.74% and 0.93% respectively, up as much as 13 basis points on the day .

French 10-year yields also soared as much as 14 basis points to 3-1/2 month highs at 0.14%, while Italian 10-year yields were up 17 basis points to 1.98%.

“The momentum we’ve seen in the periphery is largely to do with the sentiment towards debt metrics in countries which after many many years of quantitative easing and existing central bank support within the euro zone, are going into another fairly significant if not larger crisis than the one before,” said Rabobank strategist Matt Cairns.

The region’s debt has been under pressure since last week, when European Central Bank chief Christine Lagarde said it was not the bank’s job to “close spreads” - the risk premium that lower-rated borrowers pay on safe-haven German debt.

Lagarde apologised to her fellow policymakers for those comments, according to a Financial Times report on Sunday.

Reporting by Yoruk Bahceli; Editing by Dhara Ranasinghe

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