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UPDATE 1-Bund yields touch lowest in almost 2 months on safety bid after U.S. debate

Wed, 30th Sep 2020 11:15

* Euro zone periphery govt bond yields http://tmsnrt.rs/2ii2Bqr
(Updates with ECB comment, fresh quote, chart)

By Dhara Ranasinghe

LONDON, Sept 30 (Reuters) - Germany's 10-year bond yield
touched its lowest level in almost two months on Wednesday,
after an acrimonious first U.S. presidential debate made
investors cautious globally and underpinned demand for
safe-haven assets.

Comments from a number of European Central Bank officials
including President Christine Lagarde, and inflation data from
Italy and France also supported regional debt markets.

Lagarde set the scene for changing the ECB's strategy to
align it with that of the Federal Reserve, possibly including a
commitment to let inflation overshoot after it has been low for
too long.

In her first update on the ECB's ongoing review of its
strategy, Lagarde also opened the door to giving the central
bank less time to achieve its elusive near-2% inflation goal.

"In our view she is making a very clear case for a symmetric
goal of 2%," said Nick Kounis, head of financial markets
research at ABN AMRO.

The 10-year Bund yield touched -0.55%, its
lowest since early August. The benchmark yield is down almost 15
basis points in September, on track for its biggest monthly drop
since February.

Data showed Italy's EU-harmonised consumer prices rose a
preliminary 1.0% month-on-month in September and declined 0.9%
from the year earlier, pointing to deepening deflation. French
consumer prices were flat in September over a twelve-month
period.

Data on Tuesday showed September's harmonised German
consumer prices fell 0.4%, not a good sign for the "flash"
estimate of inflation in the euro area in September due later
this week.

A key gauge of long-term inflation expectations in the euro
area on Wednesday hovered close to its lowest levels since July
at around 1.1373%.

Renewed concerns about the economic impact of rising
coronavirus cases in Europe, weak inflation, and U.S. election
uncertainty have boosted demand for fixed income assets in
recent weeks.

"Financial markets were generally a touch weaker as fears of
a contested election outcome grew," said Chris Bailey, European
strategist at Raymond James, referring to Tuesday's debate
between U.S. President Donald Trump and Democrat rival Joe
Biden.

Most euro zone bond yields were steady, although Italian
yields were a touch higher. Italy's 10-year yield rose 2 basis
points to 0.86%.

Analysts said a media report on Tuesday citing the
possibility of a delay to the EU Recovery fund could explain the
slight weakness in peripheral bond markets.

ECB Chief Economist Philip Lane is scheduled to speak later
on Wednesday.

(Reporting by Dhara Ranasinghe; Editing by Ana Nicolaci da
Costa and John Stonestreet)

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