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ECB's cautious optimism on vaccine supports euro debt markets

* Euro zone periphery govt bond yields tmsnrt.rs/2ii2Bqr

LONDON, Nov 13 (Reuters) - Euro zone government bond yields nudged down on Friday, as central bank comments that the economic outlook remains unclear even with hopes for a coronavirus vaccine comforted debt markets that more monetary policy stimulus is on its way.

The heads of the Federal Reserve and the European Central Bank on Thursday welcomed the encouraging results in trials of a vaccine candidate for the novel coronavirus but stressed that the economic outlook will remain uncertain.

“They all shared similar concerns that a potential Covid-19 vaccine would not end the economic challenges of the pandemic,” said Deutsche Bank strategist Jim Reid.

Monday’s upbeat news from Pfizer about a COVID-19 vaccine sparked a heavy selloff in U.S. and European bond markets as investors jumped to price in a brighter outlook, although that optimism faded as the week progressed.

The French government said late on Thursday that there would be no easing for at least two weeks of the country’s second COVID-19 lockdown, with the number of people in hospital with coronavirus now higher than at the peak of the first wave.

In early trade, Germany’s benchmark 10-year Bund yield was down 1.5 basis points on the day at -0.54% and moving further away from 2-month highs hit on Wednesday.

The sharp selloff in bonds at the start of the week still left Bund yields up 7 bps on the week and set for their biggest weekly jump since August.

With the euro zone likely heading back into recession this quarter, the ECB has already said it would provide more stimulus in December.

This week’s comments from ECB officials have only reinforced the expectation of more stimulus ahead.

Bond yields across the euro area nudged lower, with Italian 10-year debt yields a touch lower on the day at 0.64% , keeping record lows hit around 0.57% in sight.

Chris Bailey, European Strategist at Raymond James, said that the talk of more stimulus at a central bank forum hosted by the ECB this week was best summed up by ECB policymaker Francois Villeroy de Galhau remarks on the “need to do more”.

“An unsubtle hint ahead of the ECB’s December meeting,” said Bailey. (Reporting by Dhara Ranasinghe, Editing by William Maclean)

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