June 25, 2019 / 11:26 AM / 4 months ago

UPDATE 2-Euro zone yields test lows as focus turns to under-fire Fed

* Powell speech eyed after Trump says Fed “blew it”

* U.S. yields lower on day, 10-year yield tests 2%

* German, other euro zone yields hover near record lows

* Euro zone periphery govt bond yields tmsnrt.rs/2ii2Bqr (Updates pricing, adds detail on U.S. data)

By Abhinav Ramnarayan

LONDON, June 25 (Reuters) - German government bond yields fell to a record low on Tuesday before a speech by Federal Reserve chief Jerome Powell, who is coming under strong pressure from U.S. President Donald Trump to cut rates sharply.

As major central banks around the world trend towards looser monetary policy - the European Central Bank said last week it might cut rates and restart money printing, prompting the rally in bonds to accelerate - focus is turning towards the United States.

Powell is set to speak at 1 p.m. (1700 GMT). Investors will be looking for signs on how far U.S. policymakers will cut rates in July, particularly after Trump on Monday ratcheted up his criticism of the central bank, saying it “blew it” in June.

The latest run of data from the U.S. shows consumer confidence fell to a 21-month low in June, while new single-family home sales unexpectedly fell for a second month, adding further evidence of a slowdown in U.S. growth.

“The market is at least pricing in a 25 basis point rate cut, and will be keeping an eye on a possible 50 basis point cut. It’s not our base case, but if Powell gives a hint that this will happen, that should give bonds a further boost, especially at the short end,” said Commerzbank rates strategist Rainer Guntermann.

“In any case, subdued growth suggests that both (European and U.S.) central banks should run with an easing bias.”

U.S. Treasury yields dipped below 2% and were last down three basis points on the day at 1.99.

German 10-year yields fell to an all-time low of -0.336% in early trade, though the low yields may be deterring some investors as the almost 4 billion euros of 2.00% coupon two-year notes received a bid to cover ratio of just 1.1, down from 1.6 last time.

Italy meanwhile received strong demand for its bond sale, raising around 1 billion of inflation-linked bonds maturing 2028 and 2041 with bid-to-cover ratios of 2.48 and 2.58 respectively.

The ultra-low rates environment has also prompted Austria to exploring the possibility of issuing a 100-year bond, alongside a new five-year bond.

French, Dutch, Austrian and Finnish 10-year yields are also in negative territory. French 10-year yields were last at -0.006% while Irish 10-year yields were at record lows.

Data showed confidence in the French industrial sector fell in June, reflecting a drop in overseas orders within the euro zone’s second-biggest economy.

“It adds to the notion that ECB policy easing is likely to unfold,” said Guntermann. (Reporting by Abhinav Ramnarayan; editing by Alison Williams and Kevin Liffey)

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