UPDATE 2-German yields rise on U.S. data, China stimulus hopes

Core European government bond yields rose on Tuesday, following their U.S. counterparts after U.S. factory activity unexpectedly rebounded in January after contracting for five straight months, raising some hopes the global impact of the virus in China may be less severe than expected. The Institute for Supply Management (ISM) said on Monday its index of national factory activity increased to a reading of 50.9 last month, the highest level since July, from an upwardly revised 47.8 in December.

A reading above 50 indicates expansion in the manufacturing sector, which accounts for 11% of the U.S. economy. The ISM index had held below the 50 thresholds for five straight months. The data put benchmark U.S. yields for 10-year maturities on their biggest daily rise in nearly two months as some hedge funds took profits on their bought bond bets on expectations that U.S. economic growth may soften.

German yields for 10-year maturities rose 3 bps to -0.408%, their biggest daily rise in a month. "The spillover effect from the positive U.S. data has triggered a broader move in core European bonds," said Rene Albrecht, a rates strategist at DZ Bank.

But the impact from the stronger U.S. data was only limited to safe-haven European bonds with yields on government debt from Portugal and Italy relatively unchanged. News that Chinese authorities have stepped up measures to relieve pressure on the economy by injecting cash also calmed sentiment to some extent through the rising death toll remained a source of concern.

The central bank, the People's Bank of China (PBOC), will inject 500 billion yuan ($71.50 billion) through open market operations on Tuesday, traders said, after an injection of 1.2 trillion yuan a day earlier. ($1 = 6.9928 Chinese yuan renminbi) ($1 = 0.9046 euros)