Euro zone government bond yields edge up; US fiscal stimulus talks in focus

LONDON: Euro zone government bond yields edged up on Tuesday as global market sentiment remained upbeat about US fiscal stimulus amid a flurry of euro zone government bond sales and economic indicators.

Global stock markets gained for a second consecutive day on Tuesday, spurred by increased optimism about economic stimulus and global recovery.

"The main driver today is represented by optimism in talks on the US fiscal stimulus plan," said Antoine Bouvet, rates strategist at ING.

"We saw additional impact from better-than-expected euro zone GDP initial estimates," he added.

The euro zone economy contracted by less than expected in the fourth quarter of 2020 amid pandemic-induced lockdowns.

Elsewhere in the bloc, Italy's economy shrank by 2.0% in the fourth quarter of last year from the previous three months, a slightly smaller slump than expected, and preliminary French inflation data showed a 0.8% increase year-on-year in January, higher than a forecast of 0.4%

Soon after the data were published long-term inflation expectations for the bloc rose to the highest since May 2019 at 1.3579%

Elsewhere, Belgium and Finland launched sales via syndication of new 50-yr and 30-yr bonds respectively, according to a lead manager and IFR.

Germany sold via auction 4.732 billion euros of a new 2-year bond due March 2023.

The benchmark German 10-year Bund yield was up around two basis points at -0.492% at 1125 GMT, having risen by around 6 bps in the past seven days.

The spread between the German benchmark yield and the 10-year Italian yield was almost flat at 113 basis points .

In Italy, policy conflicts and disagreements over government positions are hampering attempts to revive the country's ruling coalition as the mediator appointed by President Sergio Mattarella is due to report back later on Tuesday.

Riskier Italian bonds yields edged higher, with the 10-year up around 2 basis point at 0.641%.

"The market believe Italy's political crisis will be solved very quickly. Optimism is high," ING's Bouvet said.