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Euro zone yields slip as U.S.-China tensions unnerve investors

Credit: REUTERS/KAI PFAFFENBACH

Euro zone government bond yields fell on Thursday as investors looked for safer assets, amid concern that tensions over Hong Kong will stymie a U.S.-China trade deal.

By Tommy Wilkes

LONDON, Nov 28 (Reuters) - Euro zone government bond yields fell on Thursday as investors looked for safer assets, amid concern that tensions over Hong Kong will stymie a U.S.-China trade deal.

Although the moves were small and within recent trading ranges, the 10-year German bond yield did touch its lowest since Nov. 1.

U.S. President Donald Trump on Wednesday signed legislation backing pro-democracy protesters in Hong Kong, worrying investors that would stall trade talks with China.

China's Foreign Ministry promptly warned of unspecified "firm counter measures" and summoned the U.S. ambassador in Beijing. Equity markets fell as investors sought safety.

"Safe havens are in the green this morning. Investors are understandably concerned about the progress of the talks between the U.S. and China," said Sebastian Fellechner, an analyst at DZ Bank.

The 10-year German bond yield fell nearly 2 basis points to -0.386 percent DE10YT=RR, a four-week low, before recovering to -0.375 percent, down 1 bps on the day. Other yields, including French yields FR10YT=RR, were also down.

The gap between Italian and German 10-year government bonds DE10IT10=RR rose to 172 bps, its widest in two weeks, after Italy sold the top planned amount at a bond auction, 5.75 billion euros ($6.34 billion).

After falling before the auction, Italian yields rebounded, with the 10-year yield nearly 4 bps higher at 1.36% IT10YT=RR, up from as low as 1.298% earlier in the day.

Trading was generally quiet with U.S. markets closed for the Thanksgiving holiday.

Individual German state inflation data were released but did little to move the market. A report on price growth in November in the country as a whole is due at 1300 GMT.

Euro zone sentiment recovered more than expected in November thanks to optimism in services, data showed on Thursday, but inflation expectations among consumers fell.

ING analysts noted that Spanish and German inflation data come "ahead of tomorrow's Eurozone figures, where the consensus is looking for marginally higher readings, but our economists do not see a lot which points to significant sustainable increases."

Investor attention, however, remains focused on the trade negotiations.

Fellechner at DZ Bank said investors would also be watching out for any market-moving comments from three European Central Bank officials speaking on Thursday.

European Central Bank policymaker Francois Villeroy de Galhau told the European international forum in Tokyo that euro zone countries with fiscal space, such as Germany, should use it to promote growth in a region hurt by the global trade war.

($1 = 0.9073 euros)

German 10-year bond yieldhttps://tmsnrt.rs/2QWhmQn

(Editing by Larry King)

((thomas.wilkes@tr.com; Reuters Messaging: thomas.wilkes.thomsonreuters.com@reuters.net))

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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