Euro zone yields slip on economic, coronavirus worries

Eurozone bond yields edged lower early Thursday as concern about a eurozone economic slowdown and damage to Asian growth from China's coronavirus kept core yields near two-week lows.

Worries about the euro zone's economy after a string of weak data have kept safe-haven government debt like Germany's well-supported. New data arrive on Friday when purchasing managers indexes and eurozone inflation numbers are released. The effects of the coronavirus on the eurozone economy are still unknown, but yields have already priced in much of the outlook for the region, particularly in Germany, said Jan von Gerich, an analyst at Nordea.

"It seems like the lower yields already account for the weakening outlook," he said. "The problem for yields to go even lower is that the ECB (European Central Bank) doesn't seem keen on any more easing. The bulk of the slowdown is priced in." ECB minutes from its last meeting will be published later on Thursday. Analysts are not expecting market-moving information.

The 10-year German government bond yield was down almost 2 basis points at -0.432%, close to three-and-a-half-month lows of -0.447% reached earlier in February. Other core eurozone yields were also lower by 1 to 2 basis points. The coronavirus continues to shape risk appetite. China has reported a large drop in new cases and announced an interest rate cut to buttress its economy. But South Korea reported a jump in new cases, two people died in Japan and researchers said the virus spreads more easily than previously believed.

Italian bond yields largely shrugged off renewed concerns about a breakdown in the governing coalition as investors hunted for better yields in markets like Italy and Greece. Analysts at Unicredit said Matteo Renzi, leader of Italy Alive, had further raised tensions within the coalition this week but did not announce any steps that could cause a government crisis.

"We regard recent political developments mostly as noise, but recognize that uncertainty is on the rise," they wrote, noting that the spread between Italian and German bond yields had widened but remained below the 140 basis points. The 10-year bond yield traded down 1 basis point at 0.93%.