Euro zone bond yields keep falling; focus remains on virus, policy measures

Euro zone bond yields continued to fall on Thursday as global markets remained wary of a second wave of coronavirus infections, while European analysts focused on the policy response to the pandemic. New outbreaks of the coronavirus in South Korea and China aroused concern, sending global stock markets falling, as more countries begin to re-open their economies. nL4N2CW1ER]

Safe-haven 10-year German bond yields fell 2 basis points in early trade to -0.55%. Italian 10-year bond yields were unchanged at 1.81% after falling 9 basis points on Wednesday. "Given that the data calendar remains very light again today, and primary market activity will also be quiet in the euro area, with only Ireland set to sell bonds, we expect euro zone government bond yields to trade broadly sideways," UniCredit analysts told clients.

Ireland is expected to raise 1 billion to 1.5 billion euros in an auction of nine- and 30-year bonds. "Swings in risk appetite after yesterday's Mr. Powell's cautious tones and more in general related to the developments of lockdown measures will remain an important driver," UniCredit's analysts said. U.S. Federal Reserve Chairman Jerome Powell warned of the worst recession since World War Two on Wednesday.

Focus will also be on the European Central Bank's economic bulletin due at 0800 CET. Analysts are also expecting the release of the tax intake forecast of the German government's tax experts.

Federal and state governments are likely to get about 100 billion euros less in tax revenues this year than previously estimated and the deficit is likely to reach 300 billion euros by 2024, the newspaper Bild reported on Monday. No increase in taxes or contributions are being planned to finance the costs of dealing with the coronavirus, Chancellor Angela Merkel said on Wednesday.

ECB policymaker Luis de Guindos is also scheduled to speak later in the session, where he is expected to reiterate the message that the ECB is ready to provide more stimulus if necessary. Germany will act wisely in response to a court ruling against the ECB's flagship stimulus programme and use the decision as impetus to drive closer euro zone economic policy coordination, Merkel also said on Wednesday.

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