Euro zone yields rise as German business morale brightens

LONDON: Euro zone government bond yields rose on Tuesday as a survey showed business morale in Germany rising more than expected, pointing towards a rebound in Europe's largest economy from its biggest quarterly contraction on record.

Germany's Ifo Institute said its business climate index rose to 92.6, its fourth straight monthly increase and stronger than economists had expected, boosting hopes that German companies are recovering from the coronavirus shock.

Analysts said that would be a further sign that Germany's 130 billion euro ($153 billion) stimulus package is helping power a recovery.

"It does not take a rocket scientist to predict that the (German) economy will have one of its best quarterly performances ever in the third quarter," said Carsten Brzeski, chief economist for the euro zone at ING. "All activity indicators point to a continuing increase during the summer months."

Germany suffered a record 9.7% downturn in the second quarter as private consumption, investments and exports all collapsed in the COVID-19 pandemic.

Germany's 10-year bond yields, a benchmark for the region, rose 5 basis points to a one-week high of -0.445%, at the higher end of the August trading range of -0.56% to -0.40%.

Other euro zone bond yields, from Netherlands to Italy, were up 3 to 7 basis points, with Italian 10-year yields hitting a one-week high of 1.07%.,

The Italy-Germany 10-year yield spread was wider at 150.8 bps but still below its August high of 158 bps.

Positive noises on U.S.-China trade negotiations, with both sides reaffirming their commitment to the Phase 1 trade deal, and talk of a COVID-19 treatment also helped stabilise sentiment and reduce demand for safe-haven euro zone bonds.,

Also on Tuesday, Germany sold 4.9 billion euros of two-year bonds in an auction on almost twice as much demand. A consumer confidence reading in the United States is due later in the session.

Finland said it had appointed banks for a 10-year bond sale via a syndicate of banks, to be launched in the near future, subject to market conditions.