* Euro zone periphery govt bond yields tmsnrt.rs/2ii2Bqr (Updates prices, adds detail)
By Abhinav Ramnarayan
LONDON, July 22 (Reuters) - Italian 10-year government bond yields fell towards the 1% mark on Wednesday, basking in the afterglow of an EU stimulus fund deal although worries over a resurgence in Sino-U.S. tensions kept alive the bid for safer assets as well.
Concerns over the global economy and rising COVID-19 cases in the United States earlier scotched some of the euphoria from the European Union’s stimulus deal reached on Tuesday, boosting demand for safe-haven German and U.S. debt.
But those worries weren’t enough to derail the rally across southern Europe, with Italian 10-year borrowing costs down 5 basis points on the day, touching a low of 1.096%, a fresh 4-1/2 month low.
Two-year Italian bond yields also hit new recent lows at -0.05% after falling back in into negative territory earlier this week.
Italy’s yield spread over Germany, a gauge of relative risks, held near its tightest level since late March, a level hit on Tuesday after EU leaders clinched the stimulus deal for coronavirus-throttled economies after a long and fractious summit.
Spanish and Portuguese bond yield spreads over benchmark Germany also held just off their tightest levels since early March while the euro surged to a near two-year high against the dollar.
Concerns linger however over the global backdrop, with U.S. President Donald Trump warning that the pandemic would get worse before it got better.
“I doubt that we will manage to price a significant improvement in sentiment given the potential for rising cases in the United States after lockdown measures were dropped too early in some states,” said ING rates strategist Antoine Bouvet.
Demand for government bonds seen as safe is also being driven by other factors, including concern over the Brexit transition period ending without a deal over future relations and wrangling in the U.S. Congress over a new round of federal aid.
Earlier, a German auction of long-dated debt received good take-up, with over 3 billion euros of demand allowing the debt agency to sell 1.26 billion euros of 30-year Bunds.
U.S. Treasury 10-year yields were down 2 bps at a 12-day low while German 10-year borrowing costs dropped 3 bps at -0.493%
The moves were mirrored by other high-grade euro zone debt from the Netherlands and France. (Reporting by Abhinav Ramnarayan; Additional reporting by Sujata Rao; Editing by Larry King and Hugh Lawson)