* German yields rise 3 bps, Italian yields also higher
* Analysts say bond markets set for volatile week
* German constitutional court ruling due on Tuesday
* Weak PMIs, U.S.-China trade spat hits risk appetite
* Euro zone periphery govt bond yields tmsnrt.rs/2ii2Bqr (Updates prices)
LONDON, May 4 (Reuters) - German bond yields rose on Monday as unease about a German constitutional court ruling on the legality of central bank bond purchases outweighed worries about the global economic outlook that had driven them to near record lows.
Analysts said the ruling, due on Tuesday, from the German constitutional court on whether the European Central Bank’s expanded bond-buying scheme was in breach of German constitutional law was unnerving investors.
While it was unlikely the court would rule against German bond purchases - and it has backed the scheme in previous rulings - investors were on high alert for anything that could alter the ECB’s massive stimulus scheme that has kept a lid on government borrowing costs.
Daniel Lenz, a strategist at DZ Bank, said there was “some uncertainty” ahead of the decision and together with profit taking after German yields hit 1-1/2 month lows last week, it had pushed German yields higher on Monday.
The German 10-year yield rose around 3 basis points to -0.558%. Other core yields, such as in France , were up by similar amounts.
German yields fell to 1-1/2 month lows last Thursday after the ECB held off from announcing any new big policies, fuelling purchases of what is seen as a safe-haven investment.
With equity prices falling as a more cautious tone spread across markets, bond investors were also in a risk averse mood even as more countries relaxed restrictions introduced to help fight the spread of COVID-19.
Underlining the scale of the economic hit from the lockdowns, a series of Purchasing Managers’ Indexes from IHS Markit across Europe and Asia published on Monday fell deeper into contraction last month, with many diving to record lows and others hitting levels last not seen since the 2008-2009 global financial crisis.
“People know and realise that this economic recovery will take time,” said Lenz at DZ Bank.
Concerns about another growing trade spat between the United States and China over the coronavirus crisis also weighed on investor sentiment at the start of the week.
Unicredit analysts said it was “inevitable that there will be some elevated volatility” in euro zone bond markets this week with the German court ruling and two ratings agencies publishing their decision on Friday on whether to change the rating they give Italian government debt.
Italian bond yields initially headed higher as more investors sold following last week’s ECB meeting, with the 10-year yield up 3 basis points to 1.807% and rising towards a one-week high before falling back.
Other peripheral debt yields rose before giving up those gains. The Spanish 10-year bond yield was unchanged at 0.837% while the 10-year Portuguese bond yield stood at 0.877%.
Reporting by Tommy Reggiori Wilkes; Editing by Kirsten Donovan, Ken Ferris, Philippa Fletcher