* Euro zone periphery govt bond yields tmsnrt.rs/2ii2Bqr
By Virginia Furness
Aug 23 (Reuters) - Euro zone bond yields fell before the release of PMI data on Thursday, which should give some indication of the prospects for the eurozone economy.
Signs of improved economic growth saw the transatlantic spread, an indicator of how the monetary policy stances of the United States and the euro zone are converging or diverging, fell to its near its tightest level in two months.
The spread between German 10-year and U.S. 10-year Treasury yields opened on Thursday at 247.0 bps.
European Central Bank watchers will be paying close attention to the eurozone flash PMI figures this morning. Signs of strength in the euro zone economy are raising expectations that the ECB will remain on course with its gradual withdrawal of stimulus.
Earlier data points to higher growth with annual inflation in the euro zone rising to 2.1 percent in July, the European statistics office Eurostat said last week. That confirmed inflation was above the ECB’s target.
Signs of faster economic growth and inflation in the euro zone had seen German 10-year yields come off recent lows of 0.29 percent earlier this week. But German bonds fell around 1 basis point across the curve early on Thursday.
Bund funding is set to rise in gross issuance by 10 billion euros ($11.44 billion) across all instruments in 2019. Expectations of new supply kept a 10 bps widening in Italian spreads on Wednesday from turning into a stronger bid for Bunds, according to research by Commerzbank.
The market will also be awaiting the publication of the minutes of the ECB’s July monetary policy meeting, with the focus on the next rate hike.
New tariffs imposed overnight by the United States and China may add to a bid for safe-haven assets such as German bonds. The two countries implemented 25 percent tariffs on $16 billion worth of each other’s goods; they have now imposed tariffs on a combined $100 billion of products since early July.
Global trade concerns had eased ahead of a meeting between mid-level Chinese and U.S. government officials, but the additional tariffs have renewed concern that a global trade war will hurt economic activity.
The 10-year U.S. Treasury bond has fallen from the highs of over three percent seen in early August to 2.81 percent on Thursday. ($1 = 0.8744 euros) (Reporting by Virginia Furness, editing by Larry King)