German Bund Yields Edge off Highs, Italian Politics in Focus

MILAN, Feb 8 (Reuters) – Euro zone core bonds yields were almost flat on Tuesday, edging off Monday highs, as Italy’s borrowing costs held near recent lows as Mario Draghi faces a last day of consultations with political parties.

Asian stock markets rose on Tuesday after a record-setting day on Wall Street but, in a sign that positive sentiment may run out in European trading, European stocks futures were down. Oil also hit 13-month highs, helped by rising optimism about a return in fuel demand.

“Reflation is set to remain the theme in rates markets,” ING analysts wrote in a note.

However, Italy was still in focus with its political developments.

Anti-establishment 5-Star Movement said on Monday it would consult members on whether it should back a government led by Draghi, increasing the uncertainty over the make-up of his coalition.

It is unclear whether Draghi will wait until the results of the 5-Star vote before reporting back to President Sergio Mattarella.

Italy’s 10-year bond yield was almost flat at 0.517% , near almost one-month lows hit on Friday. Its spread over benchmark 10-year Bund yields was around 95 bps , close to its tightest levels in five years.

Germany’s 10-year bond yield was flat on the day at -0.444% , after hitting five-month highs on Monday at -0.412%.

From the supply side, Germany will sell a new Bundei due in April 2033.

Spain mandated on Monday banks for a new 50-year bond to be issued soon, possibly on Tuesday.

“This might continue to pose some selling pressure at the long and extra-long end of EGB curves,” UniCredit wrote in a daily report.

Data on Monday showed that the European Central Bank money printing slowed in latest week.

ECB President Christine Lagarde said on Monday the ECB must keep copious stimulus in place to revive a recession-hit economy but needs governments to keep up spending.

Reporting by Sara Rossi, editing by Larry King

Source: Reuters

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