Euro zone government bond yields rise on Moderna vaccine optimism

It became the second U.S. drugmaker after Pfizer last week to report results that far exceed expectations, boosting risk sentiment across markets, which hurt safe-haven government bonds. Germany's benchmark 10-year Bund yield rose as much as up 3 basis points to -0.52%, although it remained below two-month highs at -0.456% hit last week after the Pfizer news.

Euro zone government bond yields rose on Monday after Moderna said its experimental vaccine was 94.5% effective in preventing COVID-19 based on interim data from a late-stage trial. It became the second U.S. drugmaker after Pfizer last week to report results that far exceed expectations, boosting risk sentiment across markets, which hurt safe-haven government bonds.

Germany's benchmark 10-year Bund yield rose as much as up 3 basis points to -0.52%, although it remained below two-month highs at -0.456% hit last week after the Pfizer news. It was last up 2 basis points on the day to -0.53%.

"The news about Moderna’s vaccine boosted risk sentiment and sent yields higher. But the reaction wasn't as strong as with the same news by Pfizer last week," said Antoine Bouvet, senior rates strategist at ING in London. "A vaccine available soon is already priced in."

With Italian yields still down 1 basis point on the day, that pushed the closely watched gap between its 10-year yield and Germany's - effectively the risk premium on Italian debt - to its lowest since the second quarter of 2018 at 114.2 basis points. Earlier in the session Japanese economic growth beat records and forecasts, while output in China was stronger than expected.. But neither triggered selling in fixed income markets, as expectations for more ECB stimulus continue to underpin bonds and Germany's 10-year yield hit a one-week low at -0.569% in earlier trade.

Focus is also on a speech by European Central Bank President Christine Lagarde at 1300 GMT. "The key question which market participants want answered by the ECB is: What is December going to bring?" DZ Bank analysts told clients.

Analysts expect the ECB in December to increase and extend the Pandemic Emergency Purchase Programme after it pre-committed to additional stimulus at its October meeting. They also expect a new series of cheap loans under the Targeted Longer-Term Refinancing Operations programme, intended to bolster lending to small and medium-size business. "In Europe, there is an upside for the periphery as central bankers discuss December's stimulus package," said Althea Spinozzi, fixed income strategist at Saxo bank.

"For 10-year BTP-Bund spreads, we now target 100 basis points amid waning risks, supportive of net supply and persistent search for yield," Citi said in a research note.