March 18, 2020 / 8:55 AM / 21 days ago

UPDATE 1-German yields rise as joint euro zone 'coronavirus' bonds considered

* Italian PM pushes for joint euro zone issuance

* High-grade bond yields rise 8 to 12 basis points

* Analysts scan Bund auction for dislocation signs (Adds quotes, background)

By Abhinav Ramnarayan

LONDON, March 18 (Reuters) - High-grade euro zone government bonds, led by Germany, saw yields jump on Wednesday morning on expectations of joint euro zone bond issuance and as governments around the world ramped up spending plans to combat the coronavirus fallout.

Upcoming German and Finnish government bond auctions also pushed yields higher. Analysts were uncertain how strong the bids would be amid low liquidity and high volatility.

Italian Prime Minister Giuseppe Conte, whose country has been hardest hit by the disease, called for special “coronavirus bonds” or a European guarantee fund to help member states finance urgent health and economic policies, an Italian government source said.

When asked about this proposal, German Chancellor Angela Merkel did not rule it out, saying no decision had been made but Europe’s biggest economy will continue discussions.

So-called safe euro zone bond issuance has been a topic for discussion in the years since the creation of the single currency bloc, but Germany has always rejected the idea.

“I’ve been doing work and analysis on joint sovereign issuance in Europe since 2007 and it has never materialised,” said Mizuho’s head of rates, Peter Chatwell.

“This crisis could be the wedge that prompts euro zone countries to move beyond thinking as individual sovereign states.”

On Wednesday, Germany’s 10-year government bond yields rose nine basis points to their highest in over a month at -0.342%. Other high-grade euro zone bond yields added 8 to 12 basis points.,

Upcoming German government bond auctions also created uncertainty, with market participants speculating on whether takeup would be normal in the volatile environment.

The Italian government bond market gained some respite in early trade. Yields fell 2 to 6 basis points across the curve, though this changed quickly as the session continued, and yields were up again by 0820 GMT.

Chatwell of Mizuho warned, however, that market volatility is so severe that one should be careful reading too much into sharp moves, because prices were moving on very little trading.

Markets around the world have been crimped by the spread of the coronavirus, has already claimed more than 7,900 lives around the world.

The world’s richest nations prepared more costly measures on Tuesday to combat the global fallout of the virus, which has triggered social restrictions unseen since World War Two and sent economies spinning toward recession. (Reporting by Abhinav Ramnarayan; editing by Karin Strohecker, Larry King)

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