October 10, 2019 / 7:59 AM / 13 days ago

Euro zone yields edge higher ahead of U.S.-China trade talks

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

* All eyes on U.S.-China trade negotiations, Brexit talks

* Yields move 2-3 basis points higher

By Tommy Wilkes

LONDON, Oct 10 (Reuters) - Euro zone government bond yields rose slightly on Thursday as investors waited to hear on any progress in U.S.-China trade talks and a crunch meeting between the British and Irish leaders over Brexit.

Yields have moved higher in recent days, but analysts said any gains are likely capped until there is some resolution over the long-running trade conflict between the world’s two biggest economies.

Top trade negotiators from the United States and China were set to meet on Thursday for the first time since late July to try to find a way out of a 15-month trade war.

With concerns mounting about the impact of the dispute on global growth coming up against a growing sense that monetary easing from the European Central Bank has run its course for now, euro zone yields have settled into a narrow trading range in recent weeks.

“Every headline, or rumour can cause intra-day gyrations in core euro zone bonds,” said Mathias van der Jeugt, a fixed income strategist at KBC. “As long as this (the trade war) remains above markets, it is very likely for core yields won’t move much higher.”

Adding to the cautious tone on Thursday is a meeting between British Prime Minister Boris Johnson and his Irish counterpart in a last-ditch attempt to revive a British proposal for a Brexit deal that the European Union has rejected.

The benchmark 10-year German government bond yield rose 2 basis points to -0.539%. French and Dutch 10-year bond yields were up a similar amount.

A report in the Financial Times that outgoing ECB President Mario Draghi had ignored dissent about the relaunch of a quantitative easing program was not moving euro zone bonds yet, analysts said, but they added that it underscored the range of opinions about the need and efficacy of more stimulus.

“In the euro zone, it shows that the bar for additional easing is extremely high,” said Mathias van der Jeugt, a fixed income strategist at KBC. “It’s one of the reasons we haven’t revisited the lows (hit in August and September) in yields.”

French industrial production fell by 0.9% in August, against a forecast of 0.3% growth, but the production numbers were mostly ignored by the market as all eyes focused on the trade negotiations between China and the U.S.

Italian yields rose more than elsewhere, with the 10-year bond yield rising 4 basis points to 1.009%, and the two-year up 2 basis points at -0.138%.

In a sign that investor appetite for negative-yielding debt is far from abating, Greece on Wednesday sold three-month treasury bills to with the yield turning negative for the first time ever. (Editing by Toby Chopra)

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