* Euro zone periphery govt bond yields tmsnrt.rs/2ii2Bqr
By Virginia Furness
LONDON, Aug 29 (Reuters) - Euro zone bond yields were flat to lower on Wednesday, with peripheral markets outperforming on a pick-up in risk appetite after Canada’s plans to rejoin NAFTA talks eased concerns about global trade.
Ten-year yields in Italy, Spain and Portugal were down 1-2 basis points while core euro zone yields were flat. European stock markets opened higher .
The U.S., Canada and Mexico have until Friday to reach a deal to update the North America Free Trade Agreement (NAFTA),
Another likely market driver this week is new bond supply, with conditions looking supportive, strategists said. Finland completed a successful 10-year bond sale on Tuesday, and Germany, the European Stability Mechanism and Italy are also all lining up sales.
“The tone is mildly positive for riskier asset classes with a constructive market tone for spreads to tighten slightly,” said Mizuho rates strategist Peter Chartwell.
“Issuers are comfortable coming to market and swap spreads will stay under tightening pressure in the rates markets. Trade talks added to stronger tone (with) positive (news) coming from Canada the main driver,” he added.
Germany will reopen a five-year bond for 3 billion euros on Wednesday, and Italy is due to sell 6–7.75 billion euros on Thursday, which may put upward pressure on yields. Italy’s sale will be the first test of investor demand for new BTP debt since July.
With Germany’s five-year bond yielding minus 0.24 percent on Wednesday, Mizuho strategists said in a note they were cautions on the appeal of that paper.
Italy’s 10-year yield fell around one basis point to 3.17 percent, staying close to the three-month highs hit on Tuesday.
Italy’s short-dated bond yields were 2–4 bps lower. .
There was some focus on a local media report that Italy had asked the European Central Bank to continue buying Italian bonds in order for it to avoid a downgrade.
Deputy prime minister Matteo Salvini said Italy was counting on the support of foreign states outside the European Union to support it in the event of its markets coming under speculative attack. (Reporting by Virginia Furness; editing by John Stonestreet)