November 4, 2019 / 10:11 AM / 7 days ago

UPDATE 2-Euro zone bond yields edge up on trade war optimism

* Bond yields higher across single currency bloc

* Upbeat noise from US/China trade talks hurts safe-havens

* Lagarde to give first speech as ECB chief

* Euro zone periphery government bond yields tmsnrt.rs/2ii2Bqr (Updates prices, adds move in US bonds)

By Dhara Ranasinghe

LONDON, Nov 4 (Reuters) - Euro zone bond yields rose on Monday following upbeat noises from U.S.-China trade talks and a slightly stronger tone to U.S. economic data.

World stock markets rallied, denting demand for safe-haven bonds, after the United States and China both said on Friday they had made progress in talks aimed at defusing a protracted trade war. U.S. officials said a deal could be signed this month.

A bitter trade war and Brexit uncertainty have hurt the global economy this year, prompting rate cuts from major central banks and driving borrowing costs down.

Growing confidence that Britain will avoid a no-deal Brexit pushed up bond yields in October. Data on Friday meanwhile showing U.S. jobs growth slowed less than expected in October, has lifted expectations that the U.S. Federal Reserve will not be in a hurry to lower interest rates again.

In Europe, data on Monday showed morale among investors in the euro zone jumped in November to its highest level since June.

“We’ve seen a minor bear market in fixed income in recent weeks,” said DZ Bank rates strategist Christian Lenk. “I think we’ve moved a little bit too much into optimistic territory but that now depends on outcomes,” he added, referring to data and the trade talks.

IHS Markit’s final manufacturing Purchasing Managers’ Index (PMI) came in at 45.9 in October, barely above September’s seven-year low reading of 45.7 and its ninth month below the 50 mark separating growth from contraction.

Most 10-year bond yields were around 3 basis points higher in late trade as a selloff in bond markets gathered pace as the U.S. trading session got underway.

Germany’s benchmark 10-year Bund yield was at -0.35% , above two-week lows hit last week at around -0.42%.

Italy’s 10-year bond yield briefly touched 1.13% , its highest level since late August.

U.S. 10-year Treasury yields were almost 6 bps higher on the day at 1.78% as investors braced for new supply this week.

Christine Lagarde’s first speech as European Central Bank President later on Monday was also in focus.

Lagarde, who took office on Friday, must address a deep rift between representatives of cash-rich countries such as Germany, the Netherlands and France, who opposed the decision to resume bond purchases, and the euro zone’s struggling periphery.

She has struck a balanced tone, saying an accommodative monetary policy was needed but also had side effects that needed monitoring.

“Lagarde is likely to use the opportunity to give her views on the future of the euro zone, including the need for fiscal easing in the countries with room to do so,” said Peter Chatwell, head of rates strategy at Mizuho. (Reporting by Dhara Ranasinghe; Editing by Catherine Evans)

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