High-grade euro zone yields edge higher as Turkey crisis cools

Eurozone bond yields rose from one-month lows on Thursday as a currency crisis in Turkey eased, reducing demand for safe-haven assets such as government debt.

Yields on German bonds, considered one of the safest and most liquid assets in the world, had fallen to their lowest level in a month on Wednesday as Turkey's currency crisis led to a global market selloff and boosted demand for safe assets.

But supportive measures from the Turkish central bank and key ally Qatar have helped the Turkish lira strengthen.

"The Turkish central bank and the Qatar news has helped," said ING strategist Martin van Vliet. "The overnight news that the Chinese are sending a delegation to the U.S. is also helping support risk sentiment."

China said on Thursday it would hold a fresh round of trade talks with the United States later this month, offering hope for progress in resolving a conflict that has put world markets on edge.

Germany's 10-year bond yield, the benchmark for the eurozone, was up 2 bps at 3.20 percent. Other high-grade euro zone bond yields also rose 1 to 2 bps on the day.

Italian bonds were hit particularly hard by the Turkish currency crisis, so a recovery by the Turkish lira supported Italian spreads in early trade.

With the caveat that much of Europe was on holiday, making prices more volatile than usual, Italy's 10-year bond jumped five basis points after opening at 3.14 percent, but then fell to 3.10 percent by mid-morning.

Italian 10-year yields hit a 2 1/2-month high of 3.20 percent on Wednesday. The spread over Germany was 289 bps, also the widest since late May.

The Italy/Germany 10-year bond yield spread tightened over 5 basis points to 282 bps from the previous day's close, then widened to 287 bps later in the session.

Italy's two-year and five-year bond yields also dropped, by around nine bps.

The Italy/Spain 10-year spread on Wednesday stretched to 183 bps, the widest since January 2012, the depths of the euro zone debt crisis, before recovering to 168 bps by mid-morning.

"I would say the market is in wait-and-see mode at the moment, waiting for the outcome of the budget talks," said Van Vliet of ING, referring to the Italian government's attempts to push back on EU rules on public spending.

(This story has not been edited by Devdiscourse staff and is auto-generated from a syndicated feed.)