August 29, 2019 / 8:11 AM / 4 months ago

Euro zone bond yields near record lows as trade, Brexit worries grow

* Italian yields fall again, near record lows

* Bund yields rise but 10-year remains close to -0.70%

* No-deal Brexit fears, trade worries keep investors in bonds

* Euro zone periphery govt bond yields

By Tommy Wilkes

LONDON, Aug 29 (Reuters) - European government bond yields flirted with record lows on Thursday, as the prospect of a no-deal Brexit, a worsening U.S.-China trade conflict and a global recession kept investors clinging to the safety of debt.

Italian yields touched record lows on Wednesday after the 5-Star Movement and the opposition Democratic Party said they would try to form a coalition, averting a snap election and easing economic uncertainty.

Some analysts said that should the global backdrop remain risk-averse and European bonds well bid, the Italian rally had further to run, because investors would welcome a more stable governing coalition in Rome.

“We will probably see decreasing dynamism in German consumer prices [in data published on Thursday]. The trade conflict could escalate further. In this environment, everything yielding something positive is attractive for investors,” said Norbert Wuthe, a strategist at Bayerische Landesbank.

Besides German inflation data, euro zone consumer confidence numbers are due later. Investors will be looking for weakness that confirms expectations the European Central Bank will cut interest rates next month and begin a new round of easing.

Bond markets around the world have painted a gloomy picture this week, with yields on 30-year U.S. Treasuries and 10-year German bunds yield both at record lows - 1.905% and minus 0.728% on Wednesday.

On Thursday, Germany 10-year yields rose 2 basis points to -0.702%. French and Belgian bond yields were also up.

Italian bond yields dropped, however, with the 10-year yield down 4 basis points on the day at 0.99%, just above Wednesday’s record low of 0.978%.

The 2-year Italian yield was also 4 basis points lower at -0.195% after falling as low as -0.22% the day before.

Nervous investors appeared ready to pounce on any negative news and buy into top-rated bonds, despite a months-long bonds rally dragged the entire curves in Germany and Sweden into negative territory.

“Bunds remain resilient and ultralong curves flatten, and it seems that the US long-end is driving the outright move,” Commerzbank analysts said in a research note.

“Brexit jitters and subdued German CPIs (consumer price inflation) should further fuel the flight to safety pick-ups and keep setbacks in Bunds still short-lived.” (Editing by Larry King)

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