German yields fall to lowest since May, Italy's at new record low as focus on ECB, supply

Safe-haven German 10-year bond yields fell to their lowest since mid-May in early trade at -0.571%, last down 2 basis point on the day. Italian 10-year bond yields dropped a similar amount, falling to a new record low at 0.652% A number of ECB policy members are due to speak, with focus on the bank's president Christine Lagarde and chief economist Philip Lane from 0800 GMT. An auction of eight and 17-year bonds by Portugal is expected to highlight the demand for Southern European bonds, with analysts expecting the bonds to price with record low yields.

Germany's 10-year bond yield fell to its lowest since May on Wednesday and its Italian equivalent hit a new record low, as investors awaited key speakers from the European Central Bank and bond sales from Germany and Portugal. Expectations of further European Central Bank stimulus to support Europe's coronavirus-hit economy have supported bond markets in recent weeks.

That has particularly benefited debt from lower-rated, Southern European countries, which offer a yield pick-up on the likes of Germany and would benefit the most from additional central bank stimulus. Safe-haven German 10-year bond yields fell to their lowest since mid-May in early trade at -0.571%, last down 2 basis point on the day.

Italian 10-year bond yields dropped a similar amount, falling to a new record low at 0.652% A number of ECB policy members are due to speak, with focus on the bank's president Christine Lagarde and chief economist Philip Lane from 0800 GMT.

An auction of eight and 17-year bonds by Portugal is expected to highlight the demand for Southern European bonds, with analysts expecting the bonds to price with record low yields. Portugal's 10-year yields are currently trading at their lowest since October 2019.

But analysts are mindful of the potential risks to optimism around the so-called periphery as uncertainty remains around the ratification of the European Union's 750 billion euro recovery fund by member states. "The market seems poised to look through adverse EU headlines, which may pick up ahead of tomorrow's summit," Commerzbank's head of rates and credit research Christoph Rieger told clients. "The haggling and implementation risks look set to prevail for a while."

Elsewhere, Germany is also due to re-open a 30-year bond. It is a light day for data releases, with only euro-area industrial production data for August due at 0900 GMT.

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