June 28, 2019 / 7:14 AM / 23 days ago

Euro zone bond yields hover near lows ahead of inflation data

* Euro zone inflation expected at 1.2% - Reuters poll

* German yields hover near record lows at -0.32%

* Italian debt outperforms, yields lower 3-4 bps

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

By Abhinav Ramnarayan

LONDON, June 28 (Reuters) - Euro zone government bond yields hovered near record lows in many cases on Friday ahead of the release of inflation data for the bloc and this weekend’s G20 meeting at which the potential easing of a trade conflict will be in focus.

Flatlining inflation in the single currency bloc has forced the European Central Bank to allude to more stimulus, pushing yields to record lows in recent weeks.

With the euro zone expected to record inflation of 1.2% for the month of June when data is released at 1000 GMT on Friday — well short of the ECB target of just below 2% — investors held on to government bonds in early European trade.

“Yesterday’s euro zone inflation data saw a small downside surprise for Spain, and Germany in line (with expectations),” Mizuho’s head of rates strategty Peter Chatwell said in a note.

“The remainder of the euro zone inflation data today should send the same message to the ECB, that inflation is well below target, regardless of a slight improvement in the core reading.”

Germany’s 10-year government bond yield edged lower to -0.32%, close to a record low of -0.336% hit last week.

Italian debt, seen as one of the biggest beneficiaries of ECB largesse, outperformed, with 10-year yields dropping nearly 4 bps to 2.098%.

The closely watched spread over Germany tightened to 241 bps.

In addition to the upcoming inflation data, concerns over China’s stance on trade negotiations with the United States ahead of the weekend’s G20 meeting is also keeping alive the bid for safe haven government debt.

U.S. President Donald Trump has agreed to no preconditions for his high-stakes meeting with Chinese President Xi Jinping this weekend and is maintaining his threat to impose new tariffs on Chinese goods, White House economic adviser Larry Kudlow said on Thursday. (Reporting by Abhinav Ramnarayan; Editing by Alison Williams)

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