August 23, 2017 / 3:57 PM / a year ago

UPDATE 1-German yield falls to eight-week low on U.S. debt ceiling worries

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By Abhinav Ramnarayan

LONDON, Aug 23 (Reuters) - Germany’s 10-year government bond yield fell to an eight-week low on Wednesday, following U.S. Treasury yields lower on concerns over the debt ceiling in the United States.

The yield on Germany’s 10-year bond, fell to 0.371 percent, down 3 basis points on the day.

U.S. Treasury yields have been moving lower after U.S. President Donald Trump said late on Tuesday that he would be willing to risk a government shutdown to secure funding for a border wall, raising fears of a bruising budget battle.

They fell further on Wednesday after ratings agency Fitch said the debt ceiling would test lawmakers. U.S. lawmakers face a deadline in late September to raise the U.S. debt ceiling or risk defaulting on debt payments.

“It’s somewhat perverse that U.S. Treasuries should have a safe haven appeal when there’s concerns over the debt ceiling, but that’s how it has been historically,” said Rabobank strategist Richard McGuire.

“Add to that palpable concerns over the Trump’s administration’s legislative paralysis, and you can see why investors are jittery.”

He said German yields were also being pushed lower by resurfacing concerns over Southern Europe in general and Italy in particular, with the European Central Bank expected to signal an end to its bond-buying scheme later this year.

“It feels like the summer of peripheral love is drawing to a close,” he said.

Earlier in the session, Italian yields hit 3-1/2-week highs, as data showing manufacturing firms in the bloc clocked up their best month of growth for over six years in August, fanning expectations of an unwinding of ECB stimulus. (Reporting by Abhinav Ramnarayan; Editing by Dhara Ranasinghe)

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