June 15, 2020 / 11:27 AM / a month ago

UPDATE 2-Italy's bond yields hit lowest since March, focus on new COVID-19 cases

* Italy’s bond yields lowest since March

* Italian bonds hold ground even as risk sentiment sours

* ECB money printing slowed in latest week

* Euro zone periphery govt bond yields tmsnrt.rs/2ii2Bqr (Updates prices to close, adds bullets)

By Yoruk Bahceli

AMSTERDAM, June 15 (Reuters) - Italian 10-year bond yields hit their lowest since late March on Monday, a move analysts said underscored continued support from the European Central Bank, even as general risk aversion due to fears of a second wave of coronavirus cases hurt stock markets.

Chinese economic data disappointed and Beijing reported its second consecutive day of record new numbers of COVID-19 cases on Monday, all linked to a major wholesale food market.

That added to investor fears over a spike in cases in the United States, where several states have reported a record number of new cases in recent days, souring optimism across global markets that had been partly fuelled by a gradual lifting of lockdowns to curb the pandemic.

Stocks took another hit on Monday, while safe-haven bonds benefited, echoing moves last week when fears first came to the forefront.

“People have realised again that there are a lot of risks remaining and that we will not have a V-shaped recovery from an economic point of view,” said DZ Bank strategist Daniel Lenz.

Despite the risk aversion in markets, Italian bonds, usually deemed risk assets, outperformed. Ten-year bond yields fell to their lowest since late March at 1.37%, before pulling back in late trade to around 1.40% — still slightly lower on the day.

Two-year yields fell almost 8 bps to 0.15%, their lowest since early March.

Analysts noted a resilience in southern European bond markets, even as concerns about a second wave of the coronavirus have hurt investor sentiment globally in recent sessions.

“What stands out is that there’s not so much spread widening in the periphery,” DZ Bank’s Lenz said.

He attributed this to flexibility in the ECB’s emergency bond purchases that has allowed it to focus buying on Italy.

The Italian/German 10-year bond yield gap was at 184 bps , down 52 bps from where it stood a month ago.

Germany’s 10-year bond yield briefly fell to -0.47% - its lowest in almost three weeks - before rising in late trade. It tumbled 18 bps last week, registering its best week since February. When a bond’s yield falls, its price rises.

Italy’s government will decide by July whether to ask for a loan from the euro zone bailout fund, various newspapers reported over the weekend.

Germany’s new borrowing will rise to 218 billion euros this year, Bild newspaper reported.

The ECB bought a net 36.100 billion euros ($32.1 billion) of assets last week as part of its quantitative easing programme, below the 38.917 billion euros it purchased a week earlier, it said on Monday. (Reporting by Yoruk Bahceli; Additional reporting by Dhara Ranasinghe; Editing by Kirsten Donovan and Gareth Jones/Emelia Sithole-Matarise)

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