June 23, 2020 / 9:22 AM / 18 days ago

UPDATE 2-Euro zone yields rise as business surveys show recession easing

* PMIs across Europe suggest recovering business

* High-grade euro zone yields rise 2-3 bps across the curve

* U.S.-China trade concerns cap rise in yields

* Euro zone periphery govt bond yields tmsnrt.rs/2ii2Bqr (Adds details, updates prices)

By Abhinav Ramnarayan and Joice Alves

LONDON, June 23 (Reuters) - Euro zone bond yields rose as business surveys from the euro zone suggested the continent is recovering from the depths of the COVID-19 crisis as they emerge from lockdown.

Euro zone purchasing managers’ indices, seen as a good gauge of economic health, showed a further contraction in June across the bloc but the historic economic fall in April eased again this month.

IHS Markit’s Flash Composite Purchasing Managers’ Index (PMI) recovered more than expected to 47.5 from May’s 31.9, after touching a 13.6 record low in April.

A Reuters poll had predicted a more modest rise to 42.4, where 50 is the line that separates expansion from contraction.

The corresponding French and German surveys showed a business recession easing in the bloc’s two largest economies.

“For now as lockdowns are eased, the very strong influence that has on the data in PMIs I think feeds into the risk-on mood,” said Richard McGuire, head of rates strategy at Rabobank.

“The market only have eyes for the V-shaped recovery and the PMIs feed into that,” he said.

Britain’s private sector also shrank less than feared this month as more businesses restarted work.

Safe haven German 10-year bond yields were up 3 basis points in late trade to -0.41% and moved further away from a near one-month low hit overnight.

German yields had dropped to their lowest level since May 26 overnight at -0.492%, tracking U.S. Treasury yields lower on renewed concerns about trade relations between the United States and China.

White House trade adviser Peter Navarro said on Monday the trade deal with China was “over”, linking the breakdown in part to Washington’s anger over Beijing not sounding the alarm earlier about the coronavirus outbreak.

The pick-up in market sentiment also supported inflation expectations - a key market gauge of long-term expectations in the euro zone rose to 1.096%, its highest since June 8.

In the primary market, Germany sold 4.034 billion euros of two-year bonds, while the Netherlands raised 1.42 billion euros in a re-opening of its green bond due 2040.

Austria hired banks for the sale of a new 100-year bond that will raise 2 billion euros. The sale is expected to be launched “in the near future,” a phrase lead managers usually use a day before the sale. (Reporting by Abhinav Ramnarayan and Joice Alves, additional reporting by Yoruk Bahceli; Editing by Ed Osmond and Gareth Jones)

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