February 4, 2020 / 9:34 AM / in 21 days

Eurozone government bonds take a breather after rally

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

By Olga Cotaga

LONDON, Feb 4 (Reuters) - Eurozone government bond yields rose on Tuesday as bond investors assessed the economic repercussions of the coronavirus and heightened measures by China and other countries to tackle its spread.

More than 20,000 people have been infected by the virus globally, with Hong Kong reporting its first death on Tuesday, the second outside mainland China.

Bank of Japan Governor Haruhiko Kuroda said on Tuesday the economic impact of the new coronavirus was a concern and he would pay “maximum attention” to its effect on Japan’s economy and prices.

The death toll from the epidemic, which has infected more than double the number of people globally than the 2002/2003 SARS outbreak that also originated in China, now stands at 427. All but one of these deaths have occurred on Chinese soil.

Still, a number of bond market analysts said the pace of the spread of the virus appeared to be slowing.

Chinese authorities stepped up measures to relieve pressure on the economy and to assure international investors they are ready to do all things necessary to calm down markets.

China’s central bank will inject 500 billion yuan ($71.50 billion) through open market operations on Tuesday, traders said, after an injection of 1.2 trillion yuan a day earlier.

Moreover, the central bank also set on Tuesday its official yuan midpoint at the lowest level in over one month.

Andy Cossor, rates strategist at DZ Bank, also noted the fall in oil prices as Brent crude sank to a more than one-year low of $53.95 a barrel on Tuesday, which is likely to put more pressure on inflation growth.

All these factors provoked “a slightly smaller appetite for safe havens,” such a government bonds, Cossor said.

Benchmark German 10-year Bund yield was last up nearly 2 bps at -0.42%, but remained within sight of the -0.45% lows hit on Monday. Other euro zone government bond yields were also rising by around 2 bps.

European rates are likely to rise further as countries across Europe line up to issue new debt, ING analysts say.

“We estimate net EGB supply will amount to 52 billion euros ($57.49 billion) in February, compared to 56 billion euro last month,” they say. ($1 = 6.9928 Chinese yuan renminbi) ($1 = 0.9046 euros) (Reporting by Olga Cotaga, Editing by William Maclean)

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