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Euro zone bond yields stabilise after five days of falls; PMIs in focus

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

LONDON, Aug 21 (Reuters) - European government bonds stabilised on Friday, with yields edging up after five consecutive days of falling, ahead of euro zone factory activity data for August.

Safe-haven government debt has rallied this week as central bank stimulus, doubts about the economic recovery in the United States, and global risk-aversion due to U.S.-China tensions pushed the benchmark German 10-year Bund to 9-day lows.

But risk sentiment recovered somewhat on Friday, with stock markets rebounding even after weekly jobless claims in the United States went up to over a million.

Euro zone PMI data for August was due at 0800 GMT. Euro zone business activity grew last month for the first time since the coronavirus pandemic emerged.

“The recovering risk sentiment in yesterday’s U.S. session and firmer PMIs should make it difficult for Bunds to defend the territory below -0.5%,” wrote Commerzbank analysts.

“We suggest buying into this dip, targeting -0.5% again ahead of the weekend.”

At 0713 GMT, Germany’s 10-year Bund yield was at -0.497%, flat on the day, having reached a 9-day low of -0.512% on Thursday.

Most core yields were little changed, but riskier Italian yields were up by around one basis point.

France set a new post-lockdown record high for daily coronavirus infections on Thursday, and cases are also surging in Spain.

Germany and France said they would coordinate their coronavirus-related travel restrictions. German Chancellor Angela Merkel said she wanted to avoid closing borders again and that there is a desire in Europe for a common approach to the virus.

RBC rates strategists said that a tightening of lockdown restrictions and changes in consumer behaviour due to the resurgence in coronavirus cases across Europe might not show fully in this month’s PMI data, but would “almost certainly” have economic impact in September.

Thursday’s minutes from the European Central Bank’s July meeting showed that some policymakers cautioned against a further increase in the bank’s emergency bond-purchasing programme. (Reporting by Elizabeth Howcroft Editing by Mark Heinrich)

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