Euro Zone Bonds React Little to Recovery Fund Veto

AMSTERDAM, Nov 17 Reuters Euro zone bond yields showed little reaction to Hungary and Polands veto of the EUs budget and recovery fund in early Tuesday trade, while Italy was expected to sell a U.S. dollar bond.

Hungary and Poland blocked the adoption of the EUs 20212027 budget and recovery fund a key factor that has helped push down government bond yields in Southern European countries led by Italy on Monday, over a clause that ties funds to respecting the rule of law.

The veto, which threatens to delay the disbursement of the recovery fund, will be discussed at a meeting of European affairs ministers on Tuesday, then at a videoconference of EU leaders on Thursday.

Expectations of the veto had little market impact, although some analysts thought it might have capped the reaction to news on Monday from U.S. drugmaker Moderna, which became the second U.S. drugmaker after Pfizer last week to report results of its experimental vaccine being more effective than expected in preventing COVID19.

Euro zone bonds, which sold off moderately and then recouped losses later on Monday, were steady in early Tuesday trade, with Germanys 10year benchmark yield at 0.55 and Italys 10year yield at 0.61.

The closely watched gap between Italian and German 10year yields effectively the risk premium on debt from Italy, one of the main beneficiaries of the recovery fund was near its lowest since early 2018 at around 115 basis points.

The lack of market reactions tend to reflect the…

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