April 17, 2019 / 7:11 AM / 3 months ago

UPDATE 3-Green shoots in world economy push euro zone bond yields to 4-week high

* China data overnight beats expectations, lifts sentiment

* Italy bond market steadies after Tuesday’s selloff (Updates pricing)

By Dhara Ranasinghe

LONDON, April 17 (Reuters) - Long-dated European government bond yields rose to their highest in four weeks on Wednesday as Chinese economic data beat expectations, easing concerns about a global growth slowdown.

China’s economy grew at a steady 6.4 percent in the first quarter from a year earlier, defying expectations for a further slowdown as industrial production jumped sharply and consumer demand showed signs of improvement.

The news boosted risk sentiment, hurting safe-haven assets in turn, and followed weeks of unease in world markets over weak economic growth and Brexit.

“The Chinese data supports the green shoots story and the momentum in bond markets is shifting as the gloomiest forecasts are being taken out,” said Jan von Gerich, chief market strategist at Nordea.

Germany’s 10-year yield rose almost four basis points, hitting 0.10 percent for the first time in four weeks . It is up almost 20 bps from a 2-1/2-year low below zero hit last month as recession fears gripped world markets.

French, Dutch, Belgian and British 10-year bond yields also all rose to their highest in about a month.

U.S. 10-year Treasury yields rose to a four-week high above 2.60 percent in a further sign that investors were dialling back their worst fears on the global growth outlook.

“The Chinese GDP data for Q1 is better than expected which is good news but if you look at the big picture and ask why we are in a slowdown then that is mainly because of the trade spat, which causes uncertainty and holds back investment,” said Ricardo Garcia, chief economist for the euro zone at UBS Global Wealth Management.

“That’s what has happened in the last 12 months and is why the euro zone has been hurt. But the good news is that there are some positive signs from the U.S./China trade talks.”

The brighter data from China, the world’s second biggest economy, helped lift euro zone inflation expectations to their highest level in almost a month.

Italian bond yields steadied after a selloff on Tuesday sparked by a Bank of Italy warning on the country’s rising budget deficit.

Italy’s economy showed encouraging signs in the first two months of this year, Economy Minister Giovanni Tria said on Wednesday.

Analysts said that even with the selloff, the rise in euro zone bonds yields was likely to be limited given the bloc’s still weak economic growth outlook as well as uncertainty over Brexit and world trade tensions.

The German government cut its 2019 growth forecast for the second time in three months on Wednesday. It now sees the economy growing just 0.5 percent this year.

The next test for bond markets is expected on Thursday, with the release of flash April euro zone Purchasing Managers’ Index (PMI) data, a closely watched indicator of economic trends.

Reporting by Dhara Ranasinghe; Editing by John Stonestreet and Andrew Cawthorne

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