* Euro zone periphery govt bond yields tmsnrt.rs/2ii2Bqr (Adds graphic, updates prices)
By Elizabeth Howcroft
LONDON, June 16 (Reuters) - Demand for lower-rated southern European debt increased on Tuesday after the U.S. Federal Reserve’s asset purchase announcement boosted market sentiment, even as new COVID-19 cases emerge in Beijing.
The Fed said on Monday that it will start purchasing corporate bonds on Tuesday in the secondary market, one of several emergency facilities opened during the coronavirus pandemic.
The announcement lifted global equities, which had fallen from late last week amid worries about the U.S. economy and confirmation of a new coronavirus cluster in Beijing.
Risk appetite was also boosted by a Bloomberg News report of possible fiscal stimulus in the United States, an easing of the U.S. stance on Chinese telecoms company Huawei, and a smaller number of new coronavirus cases in Beijing compared with the day before.
“We’re seeing some pretty incredible intent on focusing on the positives at all costs,” said Rabobank strategist Matthew Cairns.
“The market is very much focused on the reality – and understandably so – that central banks will ensure that all assets rise and the constant backing of markets will remain in place.”
The benchmark German 10-year Bund yield was a touch higher at -0.43% by 1600 GMT. Germany’s finance minister will ask parliament to increase new borrowing by a further 62.5 billion euros ($71 billion) to a record 218.5 billion this year – more than previously expected - to boost the country’s recovery from the coronavirus pandemic.
Olaf Scholz is expected to present his new spending plan on Wednesday after discussing it with the cabinet.
Italy’s 10-year government bond yield fell to its lowest since late March - the second day in a row that this has happened. It was down 4 bps on the day at 1.371%.
Prime Minister Giuseppe Conte said on Monday that Italy currently has no need of a loan from the euro zone bailout fund, known as the European Stability Mechanism.
The spread between German and Italian 10-year government bonds tightened by 7 bps.
Demand for Portuguese and Spanish government debt also increased, with their 10-year yields falling by around 3 to 4 bps . ($1 = 0.8817 euros)
Reporting by Elizabeth Howcroft; Editing by Susan Fenton and Lisa Shumaker