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German yields rise as U.S. stimulus, trade talks eyed

LONDON, Aug 10 – European government bond yields edged higher on Monday as risk appetite improved, encouraging investors to move out of safe-haven assets, but concern about simmering tension between the United States and China capped gains.

Rising stocks and a weakening dollar led investors to push German 10-year bond yields up nearly 2 basis point to -0.491% in early London trading, their highest in nearly two weeks.

With U.S. jobs data on Friday better than expected, bond yields ended higher, with U.S. Treasury yields up nearly 4 bps for the week. That was the first weekly rise in yields after four consecutive weeks of falls.

But with little important economic data this week, markets will focus on two major events: the passage of U.S. fiscal stimulus and a China-U.S. meeting this weekend.

Though U.S. President Donald Trump signed executive orders on Saturday partly restoring enhanced unemployment payments to the tens of millions of Americans who lost jobs in the coronavirus pandemic, negotiations broke down between the White House and top Democrats in Congress.

Adding to the uncertainty were the ongoing tensions between Washington and Beijing. Trump signed two executive orders banning WeChat and TikTok in 45 days’ time while announcing sanctions on 11 Chinese and Hong Kong officials.

“There shouldn´t be an important deterioration in the risk sentiment unless we see another round of extended confinement measures and lockdowns that would have an impact on the economic activity,” said Ipek Ozkardeskaya, a market strategist at Swissquote.

Still, the broader backdrop for the bond market is mildly positive for risk taking. Peripheral Italian bond yields are holding firm, bucking a broader rise in European government yields.

That has pushed down spreads between Italian bonds and their German counterparts to near its tightest levels since February 2020 below 150 bps.

(Reporting by Saikat Chatterjee; editing by Larry King)

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