November 28, 2019 / 8:47 AM / 6 days ago

Euro zone yields fall as Hong Kong tensions unnerve investors

* German 10-year yield at 4-week low

* German, Spanish inflation data due

* Euro zone periphery govt bond yields

By Tommy Wilkes

LONDON, Nov 28 (Reuters) - Euro zone government bond yields fell on Thursday as investors turned a little more nervous and looked for safer assets over concerns that tensions around Hong Kong may stymie a U.S.-China trade deal.

Although the moves were small and firmly within the recent tight trading ranges, the 10-year German bond yield did drop to its lowest since Nov. 1.

U.S. President Donald Trump on Wednesday signed legislation backing pro-democracy protesters in Hong Kong.

China’s Foreign Ministry promptly warned of unspecified “firm counter measures” and summoned the U.S. ambassador in Beijing. Equity markets in Asia fell as investors sought safety.

“Safe havens are in the green this morning. Investors are understandably concerned about the progress of the talks between the U.S. and China,” Sebastian Fellechner, an analyst at DZ Bank said.

The 10-year German bond yield fell nearly 2 basis points to -0.383 percent, a four-week low, while other bond yields, including French were also down.

U.S. markets are closed for the Thanksgiving holiday.

The day ahead sees Spanish and German inflation data, as well as euro zone economic sentiment surveys due at 1000 GMT.

ING analysts noted that Spanish and German inflation data comes “ahead of tomorrow’s Eurozone figures, where the consensus is looking for marginally higher readings, but our economists do not see a lot which points to significant sustainable increases.”

With investor attention firmly focused on the progress in trade negotiations, analysts say inflation and economic data releases are having less of an impact on markets.

“There is a lot of optimism priced in (regarding the trade talks). If you look at the German 10-year bond we are still in a very tight trading range. What we need is some progress in the trade talks,” Fellechner at DZ Bank said.

He added that investors would also be watching out for any market-moving comments from three European Central Bank officials later in the day.

Outside of the core euro zone market, bond yields also declined. The Italian 10-year bond yield fell more than 2 basis points to 1.300 percent, while the Spanish dipped 2 bps to 0.389 percent.

Editing by Elaine Hardcastle

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