May 24, 2018 / 4:00 PM / 2 months ago

UPDATE 1-German bond yields hit 4-1/2 month low after Trump ditches N.Korea summit

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By Abhinav Ramnarayan and Dhara Ranasinghe

LONDON, May 24 (Reuters) - Germany’s 10-year government bond yield dropped to its lowest since early January on Thursday after U.S. President Donald Trump on Thursday called off a planned summit with North Korean leader Kim Jong Un.

The White House announcement sparked a rush into safe haven assets including euro zone government bonds and the Japanese yen .

“German bonds were already in demand after yesterday’s weak PMIs and with the Italian political risk, and the Trump news just put the icing on the cake,” said Mizuho strategist Peter Chatwell.

The yield on Germany’s 10-year government bond, one of the safest and most liquid investments in the world, dropped 4 basis points to 0.46 percent at one stage, its lowest since Jan. 11, before settling at 0.47 percent.

Most other high-grade euro zone government bond yields — which move inversely to prices — were down 2-5 basis points on the day.

Ten-year U.S. Treasury yields hit a session low after the news.

High-grade euro zone bond yields have been under pressure on concerns about political developments in Italy and signs of a slowdown in euro zone growth.

Weak data has pushed back European Central Bank rate hike expectations, with JPMorgan, for example, extending its forecast for the next hike by three months to June 2019.

ITALY SEESAWS

Italian government bond yields had fallen sharply in early trades and were set for their biggest daily drop in six months even as President Sergio Mattarella gave political novice Giuseppe Conte a mandate to lead the country’s first government made up of anti-establishment parties.

But by the close, yields were only marginally lower on the day as the country’s coalition parties pushed for eurosceptic economist Paolo Savona as economy minister, spooking markets.

At 2.40 percent, the yield on Italy’s 10-year government bond is not far from the 14-month high of 2.45 percent it hit earlier this week. (Reporting by Abhinav Ramnarayan; Editing by Saikat Chatterjee and John Stonestreet)

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