Italian bond rally in thin summer trade

Credit: REUTERS/REGIS DUVIGNAU

Italian government bond yields fell to their lowest since March on Tuesday and the country's debt was poised for its best session since July 20, while safe-haven paper also rallied as risk appetite took a hit in Europe.

Euro zone periphery govt bond yields http://tmsnrt.rs/2ii2Bqr

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LONDON, Aug 4 (Reuters) - Italian government bond yields fell to their lowest since March on Tuesday and the country's debt was poised for its best session since July 20, while safe-haven paper also rallied as risk appetite took a hit in Europe.

Europe’s Stoxx 600 index .STOXXwas meanwhile in the red after a strong rally on Monday.

European assets have become more appealing to investors as a 750 billion euro EU recovery fund has boosted sentiment towards the bloc, while U.S. coronavirus cases have surged.

Also underscoring political tensions impacting Washington, China said on Tuesday it would retaliate if the United States persisted with "hostile action" against Chinese journalists, who may be forced to leave in coming days if their U.S. visas are not extended.

German 10-year government bond yields were down 2 basis points at -0.54%, having hit 2-1/2 month lows of -0.56% last weekDE10YT=RR. They fell 9 basis points last week.

Italy's 10-year yieldIT10YT=RR, down 5.5 bps on the day, fell to its lowest since the beginning of March at 1.017%.

"Lower risk appetite has boosted demand for Bunds, also this morning, and peripheral bonds are following as ... there’s a lot of central bank excess liquidity available," Luca Cazzulani, bond analyst at UniCredit, said.

Focus was also on the European Central Bank's breakdown of its bond purchases, released late on Monday, which showed Italy continued to benefit from oversized transactions in June and July under both the ECB's emergency and conventional bond buying programmes.

That made Italy the one large euro zone country where the ECB is purchasing more bonds than its share of the capital key, a quota based on how much money each country has paid into the bank.

The data also showed the ECB now holds 9.95 billion euros of Greek government bonds, or 13.5% of the outstanding market, according to Reuters calculations.

In the primary market, Austria sold 1.15 billion euro of bonds due 2024 and 2030 via auction.

(Reporting by Yoruk Bahceli and Stefano Rebaudo; Editing by Kirsten Donovan and John Stonestreet)

((Yoruk.Bahceli@thomsonreuters.com; +44 20 7542 7571; Reuters Messaging: yoruk.bahceli@thomsonreuters.com))

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