* Euro zone periphery govt bond yields tmsnrt.rs/2ii2Bqr
By Olga Cotaga
LONDON, Jan 10 (Reuters) - European government debt yields slipped on Friday but stayed near their recent highs as fears of conflict in the Middle East dissipated and investors re-focused on the Phase 1 trade deal between the United States and China.
The deal is expected to be signed next week and U.S. President Donald Trump has said preparations for the second phase of talks would start immediately afterward, although most analysts believe China would rather wait until the U.S. presidential election in November.
Appetite for risk reduces demand for safe assets such as government bonds, pushing their price lower and yields higher.
“We do not exclude warm words being said on that topic at the phase one signature ceremony next week, but we suspect a strong appetite to sweep the issue under the proverbial carpet until the U.S. election,” ING analysts said in a note to clients.
The benchmark German Bund yield was down 1.2 basis points at -0.233%, close to the one-week high of -0.213% reached the day before.
Most other 10-year bond yields in the bloc were falling by around 1 bp as well. Italy was the outlier, with its 10-year bond yield down 3.1 bps at 1.347%, a four-day low.
The U.S. non-farm payrolls report is due later on Friday, and economists polled by Reuters expect the number to fall to 164,000 in December from 266,000 in November. That’s still relatively strong, because November’s rise was exceptional.
“Markets are primed for a decent reading,” ING analysts said. “A slow drift higher in rates is the correct trade” unless the number of jobs added in the United States falls far more or tensions between the United States and Iran escalate.
Federal Reserve officials have been signalling that U.S. interest rates are likely to stay at current levels. Minneapolis Fed President Neel Kashkari, for example, said on Thursday that last year’s rate cuts helped to reduce recession risks, and he expected no change in rates for the foreseeable future. (Reporting by Olga Cotaga, editing by Larry King)