February 27, 2020 / 8:45 AM / in a month

European bond yields fall as coronavirus cases rise outside China

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

LONDON, Feb 27 (Reuters) - European government bond yields fell on Thursday, with German benchmark debt yields near their lowest in more than four months, as the spread of the coronavirus undermined risk sentiment.

China still accounts for about 96% of coronavirus cases, but most new infections are now being reported elsewhere. Investors fled to the safety of government debt as U.S. stock futures dropped to a three-month low.

The number of cases in South Korea climbed higher and the United States warned the virus may be spreading in California. Taiwan raised its epidemic response level to the highest possible.

“It is quite a tense situation out there and core European bonds is outperforming peripherals,” said Christian Lenk, a rates strategist at DZ Bank.

Yields on benchmark German 10-year maturities fell to -0.5140%, just above an early October low of -0.472% reached in the previous session.

German bonds benefited from the rush to safety, but Italian debt underperformed — Italy’s coronavirus outbreak is Europe’s worst. The yield spread between German debt and corresponding Italian bonds widened to a one-month high above 151 basis points.

Coronavirus news is likely to overshadow any comments from European Central Bank policymakers, a number of whom are speaking today. They are unlikely to offer any clues on policy as the central bank conducts its policy review, but markets will be watching for comments on the economic impact of the virus.

Eonia money market futures dated for the ECB’s Dec. 10 meeting showed around 10 basis points of rate cuts priced in. That is up from around 7.5 bps on Monday and implies a 100% probability of a 10 bps cut.

The chance of a July cut rose to around 80% from 50% on Monday.

Reporting by Saikat Chatterjee; editing by Larry King

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