Euro zone yields rise ahead of German business morale survey

Euro zone government bond yields edged higher on Tuesday ahead of a German business morale survey that is widely expected to point towards a rebound in Europe's largest economy from its worst quarter on record.

Eurozone government bond yields edged higher on Tuesday ahead of a German business morale survey that is widely expected to point towards a rebound in Europe's largest economy from its worst quarter on record. Germany's Ifo Institute is due to release its business climate index at 0800 GMT with a Reuters poll forecasting a fourth monthly rise to 92.2.

Analysts said that would be a further sign that Germany's hefty 130 billion euro ($153.40 billion) stimulus package is helping power a recovery. "It does not take a rocket scientist to predict that the (German) economy will have one of its best quarterly performances ever in the third quarter," said Carsten Brzeski, chief economist for the eurozone at ING. "All activity indicators point to a continuing increase during the summer months." But such a turnaround would only come after Germany suffered a record 9.7% contraction in the second quarter as private consumption, investments, and exports all collapsed at the height of the COVID-19 pandemic.

Germany's benchmark 10-year bond yields led the move upwards, rising 1.5 basis points to -0.48%, roughly in the middle of the August trading range of -0.56% to -0.40%. Other eurozone bond yields across the rating spectrum, from the Netherlands to Italy, were up between 1 and 3 basis points. ,

The closely watched Italy-Germany 10-year bond yield spread was wider at 150 bps, but still comfortably below its August peak of 158 bps. Positive noises on U.S.-China trade negotiations, with both sides reaffirming their commitment to the Phase 1 trade deal, and talk of a COVID-19 treatment are also helping stabilize sentiment and reduce demand for safe-haven eurozone bonds. ,

Also on Tuesday, Germany will sell 6 billion euros of two-year bonds, while consumer confidence reading in the United States is due later in the session.