Italy's 10-year yield hits record low, Trump underpins euro zone bonds

AMSTERDAM: Italy's 10-year bond yield fell to a record low on Friday before a key reading is expected to show persistent deflation in the euro area, while investors favoured safe-haven assets after US President Donald Trump tested positive for the coronavirus.

Investors will pour over the first estimate of euro zone inflation for September to gauge just how weak the euro zone economy is amid signs of divisions with the European Central Bank.

Economists in a Reuters poll expect euro zone inflation to have fallen 0.2% year-on-year in September, unchanged from August, the first time the rate was negative since 2016.

But markets are likely primed for a lower figure after German and Italian inflation came in far below forecasts this week.

Meanwhile, investors globally shunned risk in favour of safe-haven assets as Trump's positive test results added to uncertainty around the highly-contested election in November.

Demand for fixed income broadly pushed Italy's 10-year yield to a record low at 0.75%, down 3 basis points on the day, according to Tradeweb, which cites the August 2030 benchmark.

Italian bonds continued to see support this week, despite talks of delays to the European Union's recovery fund, after regional elections in late September reduced the risk of snap national elections.

Safe-haven German 10-year yields fell as low as -0.551% in early trade just a touch off their lowest in nearly two months hit earlier this week. They were last down 1 basis point at -0.54%.

"With Trump testing positive and euro core inflation set to fall to a new record low, a payrolls miss could push Bunds to highs not seen since May," said Commerzbank's head of rates and credit research Christoph Rieger.

The 10-year German yield had fallen as low as -0.593% in early May.

US non-farm payrolls due at 1230 GMT are expected to show a fall from August numbers. It follows data on Wednesday that showed private employers added more jobs than expected in September, pushing bond yields higher during that session.