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UPDATE 1-European government bonds sell off before U.S. Treasury issuance

Wed, 12th Aug 2020 12:11

* Euro zone periphery govt bond yields http://tmsnrt.rs/2ii2Bqr
(Updates throughout, adds commentary and chart)

By Elizabeth Howcroft

LONDON, Aug 12 (Reuters) - Euro zone government bonds sold
off on Wednesday before the largest-ever 10-year U.S. Treasury
auction, with the German 30-year bond yield turning briefly
positive, even after euro zone industrial output showed the
economic recovery was slowing.

The Treasury will sell a record $38 billion in 10-year notes
on Wednesday and $26 billion in 30-year bonds on Thursday.

Core euro zone bonds sold off, with most yields up 3 to 4
basis points. Southern European bonds also sold off, with
spreads narrowing.

The 10-year U.S. Treasury yield rose the most in two months
on Tuesday, extending gains on Wednesday to reach a five-week
high of 0.68%.

"It started off as a technical move because of the issuance
that we have from the U.S. later today," said Antoine Bouvet,
rates strategist at ING. "But the real reason is that stocks are
strong and there's momentum in the market. We are cautious
because we are quite bearish about the global economy and the
U.S. in particular."

The moves come after the benchmark 10-year Bund had its
biggest daily spike in a month on Tuesday as Wall Street
rebounded towards pre-pandemic highs.

Germany's 10-year Bund yield rose 4 bps to a 23-day high of
-0.430% at around 1026 GMT. France's 10-year yield
rose as high as -0.152%, its highest in 16 days.

Spain's 10-year yield rose 4 bps to 0.326%.
Italy's was at 1.048%, up 3 bps on the day.

Belgian, Dutch, Finnish and Irish bond yields also jumped.

"Risk-on in recent days is taking its toll, but also the
U.S. supply avalanche we're seeing this week requires some
concessions," said Christoph Rieger, head of rates and credit
research at Commerzbank.

But Commerzbank wrote in a note to clients that the sell-off
was premature.

"Fundamentally nothing has changed," Rieger said. "The
coronavirus situation has not improved, the macro situation has
not changed, if anything the political risk from U.S.-China has

Russian President Vladimir Putin said on Tuesday that Russia
had become the first country to grant regulatory approval to a
COVID-19 vaccine after less than two months of human testing.
But the announcement was met with scepticism and had limited
market impact.

German Health Minister Jens Spahn said on Wednesday that the
vaccine had not been tested enough.

Eurozone industrial production data showed that, although
output increased in June, the rebound from March and April's
record lows was below expectations for a second month in a row,
and slower than May.

(Reporting by Elizabeth Howcroft, additional reporting by
Abhinav Ramnarayan, editing by Larry King)

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