January 3, 2019 / 9:00 AM / 6 months ago

Apple's warning keeps downward pressure on German Bund yields

* Apple revenue warning fuels flight to safety

* 10-year German bund holds close to two-year lows

* Spain opens issuance with up to 5.75 billion-euro sale

* Periphery bond yields up to five bps higher

By Virginia Furness

LONDON, Jan 3 (Reuters) - German government bond yields held close to their lowest in over two years on Thursday after a rare revenue warning by U.S. tech giant Apple fuelled a flight to global safe assets amid renewed concerns about slowing Chinese growth.

Apple’s fourth-quarter revenue drop and the ensuing sell-off in global equities suggested that an economic slowdown in China was worse than many expected, casting a shadow over the outlook for corporate profit growth this year.

The yield on Germany’s 10-year government bond hit its lowest in over two years on Wednesday as investors began pricing in a much lower chance the European Central Bank and the U.S. Federal Reserves would raise interest rates. Business surveys in China and the euro zone underlined worries about global growth.

Germany’s 10-year bond yield was most recently at 0.169 percent, from a low of 0.148 percent on the day. Other high grade euro zone bond yields were marginally lower on the day,.

“The market is pushing back even further the rate hike for the European Central Bank, now to the middle of 2020, and this is backed up by the latest run of data,” said Rainer Guntermann, rates strategist at Commerzbank.

Money markets are now pricing in less than a 30 percent chance of a 10-basis-point rate increase in 2019.

Guntermann said he did not expect the rally to continue, but said the downside risk of weak data would not lead to an “imminent reversal” in bund yields.

In the periphery, bond yields held slightly higher.

Spain will be the first euro zone government to issue new debt this year. It plans a sale of up to 5.75 billion euros of bonds on Thursday.

Italian bond yields were flat to three basis points up on Wednesday’s close. The sovereign’s 10-year bond yields rallied eight basis points over the course of the session, despite the takeover of Carige Bank by ECB administrators.

Analysts are also looking to Italian preliminary inflation data on Friday for evidence as to the rate of Italian growth.

“If we see another contractory print, it would underline the significant possibility that GDP growth was negative in Q4, which means Italy was in recession of the second half of last year,” said Richard McGuire, rates strategist at Rabobank. (Reporting by Virginia Furness, editing by Larry King)

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