(Corrects Thursday’s story to say German yields hit one-month low in headline, paras 1 and 4)
* Euro zone periphery govt bond yields tmsnrt.rs/2ii2Bqr
By Elizabeth Howcroft
LONDON, June 25 (Reuters) - German 10-year government bond yields hit one-month lows while Italian yields rose as investors’ risk appetite soured on Thursday.
Investors turned cautious as rising coronavirus cases stoked fears of a second wave of infection, the IMF slashed its global output forecasts, and the U.S. flagged European products worth $3.1 billion as potential targets for future tariffs.
The risk-off mood held after data showing the number of Americans filing claims for unemployment benefits fell less than expected last week.
Safe-haven German benchmark 10-year Bund yields fell to a one-month low at -0.48%,, while Italy’s 10-year yield rose as much as six basis points to 1.40%. It was up 3 basis points in late trade to 1.37%.
Although rising COVID-19 infections have been true throughout the crisis, Rabobank head of rates strategy Richard McGuire said sentiment may have been turned by news that New York, New Jersey and Connecticut will quarantine visitors from states with high infection rates.
“The easing of restrictions... is prone if not likely to reverse, and that has seen a hiatus in the previously seemingly irrepressible risk-on tone,” he said.
“It seems impossible to consider over the long term how and why bond yields will be able to sustainably rise from here,” he added.
Spain’s economy minister Nadia Calvino and Irish counterpart Paschal Donohoe confirmed their candidacies to head the influential Eurogroup of euro zone finance ministers on Thursday, with Brussels insiders tipping the Spaniard to win.
European Central Bank policymakers argued over the timing and size of their emergency stimulus programme this month but agreed that bond buys are the best tool in the circumstances, accounts of the ECB’s June meeting showed.
The ECB has agreed to give German authorities vital documents to prove the proportionality of the central bank’s policies, two sources said on Wednesday, in a move to defuse a challenge to the bank’s power.
Germany’s Constitutional Court ruled in May that the ECB overstepped its mandate with over 2 trillion euros of government bond purchases, ordering the Bundesbank to quit the scheme unless the ECB can prove proportionality within three months.
“Now we’ve got hopes of the EU recovery fund and more importantly the ECB seemingly unconstrained in its purchase programme, the structural drivers are no longer informing peripheral debt markets, they are behaving like risky assets more broadly,” said Rabobank’s McGuire.
“They follow the broader ebb and flow of risk sentiment which is exactly why we’re seeing the widening today,” he added.
Reporting by Elizabeth Howcroft; additional reporting by Yoruk Bahceli, Editing by William Maclean and Alexandra Hudson