November 12, 2019 / 8:42 AM / a month ago

Eurozone government bonds fall as traders expect Trump to postpone European auto tariffs

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

By Olga Cotaga

LONDON, Nov 12 (Reuters) - European bonds fell on Tuesday on expectations that U.S. President Donald Trump will again postpone a decision on whether to impose tariffs on European Union autos, driving investor appetite out of safe-haven government debt.

Trump is scheduled to discuss U.S. trade policy at the Economic Club of New York on Tuesday, with market participants expecting him to announce that he is putting off the decision for six months ahead of the expiration of a 180-day delay to the results of the Section 232 auto investigation.

The lunchtime address at the club will also be closely watched by investors anxious for any positive news about his administration’s long-running trade war with China, especially given recent speculation that the United States was ready roll back its import tariffs on China.

German Bund yields were 1.1 basis points higher at -0.237% , close to a five-month high of -0.218% reached last week. Yields on bonds issued by other euro area countries rose by a similar amount, although Italian 10-year paper underperformed with yields last up 3.5 bps at 1.378% .

Italy, in particular, and to a lesser extent Spain and Portugal have borne the brunt of selling in recent sessions.

Spanish 10-year bond yields were up 1.7 bps at 0.442% , following a selloff on Monday in southern European bond markets.

Views that auto tariffs will be postponed were already priced in to euro zone government bonds, said Peter Chatwell, head of rates strategy at Mizuho.

“But when the news is confirmed, there is room for a little bit more weakness,” he added.

The German Zew economic survey will be released at 1000 GMT, which according to economists polled by Reuters is likely to have improved this month.

Polls see sentiment at -13 in November and current conditions at -22, compared with -22.8 and -25.3 respectively in October.

“Economic data should be of interest even if in the current environment, releases often risk being drowned out by trade war noise,” said ING analysts in a note to clients, adding that the expected demand “would validate the improvement in market sentiment. (Reporting by Olga Cotaga; Editing by Kirsten Donovan)

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