March 13, 2020 / 8:50 AM / 3 months ago

Italian bond yields keep rising after ECB disappointment

* German yield rises as stocks recover, more talk of govt spending

* Italian yields hit new high as selling pressure grows

* ECB disappointed markets with Thursday’s stimulus package

* Euro zone periphery govt bond yields

LONDON, March 13 (Reuters) - Euro zone government bond yields rose on Friday as government debt remained under pressure after Thursday’s selloff, when the European Central Bank disappointed markets with its measures to contain the fallout from the coronavirus.

Italian yields rose to their highest since July, gaining 20 basis points. German bond yields also gained. Analysts said that investors were being forced to sell even safe-haven bonds to maintain liquidity.

On Thursday, a comment by ECB President Christine Lagarde that the central bank was not there to “close spreads” hit peripheral government bond markets especially hard.

The ECB was expected to lower interest rates and provide more targeted support that would reduce government borrowing costs, but the bank’s focus was deemed to be in helping banks.

“The market is still volatile. A lot of investors still need liquidity and they have to sell even safe havens,” said Sebastian Fellechner, an analyst at DZ Bank.

Fellechner said Thursday’s ECB meeting was a “clear disappointment”.

“The ECB delivered huge support for the banking sector. For govvies (government bonds), it was a real disappointment,” he said.

The benchmark German 10-year yield rose 11 basis points to -0.635%, helped by stock-market gains on Friday following the worst day on record for European shares.

Fellechner said more talk among some German politicians about fiscal stimulus was also pushing German yields higher.

Other core euro zone bond yields also gained.

Italy’s 10-year bond yield had soared almost 60 basis points on Thursday to its highest level since July at around 1.88% , its biggest one-day jump since the height of the euro zone debt crisis in 2011.

Italy has been hit hard by the coronavirus, with the country in lockdown as the government tries to stop the virus from spreading. Economists predict Italy’s economy will suffer a sharp slowdown and recession.

On Friday the Italian 10-year yield rose another 20 basis points to 1.936%. Italian yields were up across the curve .

The gap between Italian and German 10-year bond yields , effectively the risk premium the latter pays on its debt, had pushed out to its widest since June at around 261 bps on Thursday. It stood at 250 bps in early Friday trading.

With the ECB restricted as to what more it can do to support the economy after years of extraordinary policy, the pressure is on euro zone governments to announce more fiscal easing.

Analysts said such easing, which was inevitable given announcements about more stimulus in Italy and Britain, would keep upward pressure on government bond yields. (Reporting by Tommy Reggiori Wilkes)

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