July 10, 2020 / 7:35 AM / a month ago

German yields fall to 1-1/2 week low after record US coronavirus infections

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

By Yoruk Bahceli

AMSTERDAM, July 10 (Reuters) - German 10-year bond yields fell to 1-1/2 week lows on Friday as risk appetite was hit and global stocks fell following a surge in coronavirus infections.

More than 60,500 new COVID-19 infections were reported across the United States on Thursday, according to a Reuters tally, the largest one-day increase by any country since the pandemic first emerged.

“Confidence in risk assets cracked after previously holding up in the face of resurging Covid-19 counts and renewed lockdowns in some regions,” ING analysts told clients.

“The discount in rates had always reflected more caution, but that morphed into an outright drop in yields yesterday.”

Safe-haven German 10-year bond yields hit 1-1/2 week lows in early Friday trade, down 2 basis points to -0.48%. Italian 10-year yields were up 2 basis points to 1.30% .

That pushed Italy’s risk premium - the yield it pays for 10-year debt on top of Germany - to a 1-1/2 week high at 177 basis points.

Fitch is due to review Italy’s credit rating later on Friday. Analysts don’t expect a further downgrade after the rating agency’s off-schedule downgrade of Italy’s rating in April to ‘BBB-‘, one-notch above junk.

Focus was also turning to the European Central Bank’s meeting next Thursday.

The European Central Bank’s emergency purchase envelope is likely to be used in full despite suggestions to the contrary recently by policymakers, MNI reported on Thursday citing sources, with some of the sources sceptical that purchases would be temporary.

Coupled with a fall in weekly emergency bond purchases , some analysts had seen the previous statements as potentially worrying for the programme. The emergency purchases have been crucial in dampening the borrowing costs of heavily-indebted Southern European states like Italy.

The Eurogroup of euro zone finance ministers on Thursday elected Ireland’s Finance Minister Paschal Donohoe as its new chair, defeating Spain’s Economy Minister Nadia Calvino and his Luxembourg counterpart Pierre Gramegna

Reporting by Yoruk Bahceli, Editing by William Maclean

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