German bond yields hold near two-month lows

German government bond yields held near their recent lows on Tuesday, with investors expected to focus on headlines given a lack of data releases to steer the market. It made an exception to start purchasing junk-rated Greek debt for the first time in March. In the primary market, Austria is scheduled to sell 1.15 billion euro of bonds due 2024 and 2030 via auction.

German government bond yields held near their recent lows on Tuesday, with investors expected to focus on headlines given a lack of data releases to steer the market. Safe-haven euro zone bonds held their ground despite strong U.S. manufacturing data pushing equities higher overnight, particularly in the tech sector, while European stocks also opened higher.

Focus remains on deadlocked stimulus negotiations in the U.S. which will continue on Tuesday, Danske Bank analysts told clients. European assets have become more appealing to investors as a 750 billion euro recovery fund has boosted sentiment, while U.S. coronavirus cases have surged. German 10-year government bond yields were unchanged in early trade at -0.52%, having hit 2-1/2 month lows of -0.56% last week.

Italian 10-year yields were down 2 bps to 1.06%, after rising to near two-week highs of 1.12% on Tuesday. "The back-up in Bund yields at the start of the week still appears very modest," Commerzbank's head of rates and credit research Christoph Rieger told clients, pointing to the rally in equities, better than expected economic data - including purchasing manager indexes and Germany's ISM survey - and a reversal of month-end flows.

Ten-year German yields are up around 2 basis points this week after falling 9 basis points last week. Focus was also on the European Central Bank's breakdown of its bond purchases, released late on Monday, which showed Italy continued to benefit from oversized ECB purchases of its debt in June and July under both the emergency and conventional bond buying programmes.

That made Italy the one large euro zone country where the ECB is purchasing more bonds than its share of the capital key, a quota based on how much money each country has paid into the bank. The data also showed the ECB now holds 9.95 billion euros of Greek government bonds, or 13.5% of the outstanding market, according to Reuters calculations. It made an exception to start purchasing junk-rated Greek debt for the first time in March.

In the primary market, Austria is scheduled to sell 1.15 billion euro of bonds due 2024 and 2030 via auction.

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