UPDATE 1-Italian bond yields jump after coronavirus outbreak worsens in Italy

Italy's borrowing costs jumped on Monday after a coronavirus outbreak in the country worsened over the weekend, exacerbating concerns about the impact on one of the euro zone's biggest economies. In addition to Italy, a sharp rise in infections in South Korea and Iran has exacerbated worries that the coronavirus outbreak in China will grow into a pandemic with disruptive and deadly consequences for countries around the world.

Italy raced on Sunday to contain the biggest outbreak of coronavirus in Europe, sealing off the worst affected towns and banning public events in much of the north as a third patient died of the illness. "The news-flow on the COVID-19 coronavirus has taken a decidedly more negative tone over the last two to three days and we are starting the week with a sizeable risk-off move," said Deutsche Bank strategist Jim Reid.

Italy's 10-year bond yield jumped over 8 basis points to 0.992%. Other Italian bond yields were 4-8 bps higher on the day. The Italian/German 10-year bond yield gap meanwhile widened to 145 bps - levels last seen in late January.

Italy's benchmark stock index tumbled more than 3% in early trade to its lowest since Feb 5. Economists at Berenberg said they had now reduced their calls for eurozone growth in the first quarter to 0.1% from 0.2% but expected most of the losses from a temporary interruption of supplies from China to be recovered later on, leaving the forecast for annual GDP growth this year unchanged at 1.0%.

"The risks to this call are tilted to the downside. The rise in Covid-19 cases in Italy to 150 over the weekend accentuates the downside risks," they said in a note. The surge of infections outside mainland China triggered steep falls in stocks as investors fled to safe havens such as gold.

In bond markets, that translated into demand for top-rated bonds such as German Bunds or U.S. Treasuries. The yield on Germany's 10-year bond or Bund fell to -0.475%, its lowest in more than four months. The 10-year Treasury yield fell to 1.401% - its lowest level since July 2016. The 30-year Treasury yield touched a new record low at 1.855%.

 

(This story has not been edited by Devdiscourse staff and is auto-generated from a syndicated feed.)