March 10, 2020 / 8:25 AM / 22 days ago

Rush to safety abates for now, pushing up euro zone bond yields

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

By Dhara Ranasinghe

LONDON, March 10 (Reuters) - Most euro zone bond yields rose on Tuesday from record lows hit the previous day, as hopes for stimulus to support global growth in the face of the coronavirus outbreak boosted risk sentiment.

U.S. President Donald Trump on Monday said he will be taking “major” steps to gird the economy against the impact of the spreading coronavirus outbreak.

Japan plans to spend $4.1 billion in a second package of steps to cope with the epidemic’s effects, according to a source-based report on Tuesday.

In Europe, the response to coronavirus could dominate Britain’s first post-Brexit budget on Wednesday, while the European Central Bank meeting on Thursday is expected to weigh in with measures to support the euro zone economy.

The prospect of stimulus measures bought calm to world markets after a day of panic that sent bond yields in Germany and the United States to record lows and sparked the biggest one-day drop in two-year German bond yields since the euro zone debt crisis in 2011.

German government bond yields were 5 to 7 bass points higher on the day in early trade. The 10-year Bund yield was at -0.79% , up from Monday’s record low around -0.91%.

Dutch 10-year bond yields climbed 7 bps to -0.57% , also up from record lows hit the previous day, at around -0.70%.

“What we are seeing is a significant swing in sentiment and that is about fiscal policy, especially in the U.S.,” said DZ Bank rates strategist Sebastian Fellechner. “A lot of investors are awaiting fiscal policy, which in this crisis is more important than monetary policy.”

In Italy, where the whole country has now been placed under lockdown until next month, borrowing costs were slightly higher on the day.

Italy’s 10-year bond yield was up 3 basis points on the day at 1.44%. The 10-year yield spread over Germany was near its highest in almost seven months at around 225 bps.

Reporting by Dhara Ranasinghe

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