February 12, 2020 / 8:39 AM / 6 months ago

Euro zone bond yields rise on slowing coronavirus hopes

* Euro zone periphery govt bond yields tmsnrt.rs/2ii2Bqr

By Yoruk Bahceli

LONDON, Feb 12 (Reuters) - Euro zone bond yields ticked up on Wednesday as the spread of the coronavirus that has spooked world markets showed signs of slowing.

China on Wednesday reported its lowest number of new coronavirus cases since late January, lending weight to a prediction from its senior medical adviser that the outbreak could be over by April and boosting riskier assets such as stocks globally.

Most 10-year bond yields in the euro zone were up three basis points in early trade, with Germany’s benchmark rising to -0.36%, its highest since last Thursday.

“This is of course esentially official statistics which the entire market has been questioning. The fact that the market is this morning choosing to focus on the positive...has really just been an excuse to rally,” Rabobank strategist Matt Cairns said of the reaction from riskier assets such as stocks.

“We’re likely to see a move slightly higher in yield in the safe-havens throughout the course of today but that could quickly turn around should there be a re-acceleation in the official statistics,” he added.

The 10-year Bund yield has risen some eight basis points since last week on hopes of a slowing of the spread of the virus, but it is still down nearly 20 bps this year as fears of the impact the virus will have on global economic growth has boosted safe-haven assets.

Rabobank’s Cairns said a more meaningful rise in yields would come should the spread of the virus outside China slow down, where official data is seemingly more reliable, or health organizations are able to find a cure that can be rolled out in a short amount of time.

Euro zone industrial production data is due at 1000 GMT, following disappointing data from Germany last week, which showed its biggest fall since 2009 in December.

In primary supply, Germany is scheduled to sell 4 billion euros of 10-year bunds, while Portugal will sell up to 1.25 billion euros of bonds due 2026 and 2034.

Elsewhere, Germany’s new appointee to the European Central Bank’s board, Isabel Schnabel, defended the bank’s easy monetary policy late on Tuesday, saying the euro zone would have been worse off without it and it was up to others to counter the side effects. (Reporting by Yoruk Bahceli; Editing by Angus MacSwan)

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