April 12, 2019 / 10:54 AM / in a month

UPDATE 2-China trade data triggers biggest German Bund selloff in 10 months

* Demand for safe haven bonds dented by improving risk appetite

* German 10-yr yield set for biggest rise since last June

* Greek 10-year bond yields extend falls to 13-year lows

* Euro zone periphery govt bond yields tmsnrt.rs/2ii2Bqr (Rewrites lede to reflect German Bund landmark, updates prices)

By Virginia Furness

LONDON, April 12 (Reuters) - German 10-year yields were set for their biggest daily rise since last June after a rebound in Chinese exports gave investors hope that the global economic outlook is not as bad as expected.

Investors are hoping for signs of economic recovery in China to temper worries about slowing global growth, after the IMF this week downgraded its 2019 world outlook for the third time.

But even there the picture was mixed. Exports rebounded in March but imports shrank for a fourth straight month. Nevertheless, bond investors took heart and dialled up their appetite for risk.

After a slow trading start, Germany’s 10-year government bond yields rose to three-week highs, crossing decisively into positive territory, and were last up 6.5 basis points on the day to 0.058 percent.

U.S. 10-year Treasury yields rose to near three-week highs, and were last up over four basis points to 2.55 percent .

Other 10-year bond yields were also about six-seven basis points higher.,.

Antoine Bouvet, rates strategist at Mizuho, said the trade data from China was the trigger for the yield rise as it added weight to the view that activity is stabilising globally, but he noted that the move was oversized.

“China is a large contributor to global growth, and while in itself it is a fairly decent data print..., the reason why it has had such an oversized market impact is that we have heard from the IMF and two central banks that there is cause for concern,” Bouvet said.

“This creates a connotative dissonance; investors are positioned for weaker economy and we are seeing better data.”

The move comes despite reports of a further downgrade to German growth in 2019 by Der Spiegel news magazine, adding to evidence of a widespread economic slowdown in Europe.

The German government is expected to halve its economic growth forecast for 2019 to 0.5 percent from 1.0 percent due to weaker exports in the wake of global trade tensions, Der Spiegel reported late on Thursday.

This is more pessimistic than the 0.8 percent estimate Germany’s leading economic institutes gave for German growth, down from a previous estimate of 1.9 percent.

Worries about European growth prompted the European Central Bank to maintain its dovish stance at its April meeting on Wednesday. The anticipation of continued accommodative monetary policy in both the euro zone and in the United States kept downward pressure on core yields.

However, European Central Bank policymakers are increasingly leaning towards rewarding banks for lending to households and businesses but are mostly sceptical about giving lenders a reprieve from a charge on their idle cash, four sources told Reuters on Thursday.

“This report should go some way to help dampen market expectations for another rate reduction by the ECB,” UniCredit analysts wrote in a note. “Rate-cut expectations have built up modestly since the tiering discussion started in late March.”

GREECE LEADS PERIPHERAL CHARGE

Peripheral government bond yields continued to benefit from the ECB’s dovish signals.

Greek government bond yields remained at 13-year lows on Friday, having fallen 19 basis points this week and 21 basis points last week.

The Greek 10-year yield was at 3.29 percent, down almost eight basis points on the day.

Reporting by Virginia Furness Editing by Mark Heinrich

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