LONDON: German Bund yields fell on Monday as growth concerns, accentuated by S&P's credit rating downgrade of Finland and its cut in France's outlook to negative, pushed investors towards relatively low-risk assets.
The International Monetary Fund, which revised its global growth forecasts lower last week for the third time this year, said on Saturday bold action was needed to bolster the global economic recovery
. Standard & Poor's rating for France remained at AA+, the second highest level in its scale, but the outlook was revised to negative due to difficulties pushing through reforms and deteriorating finances.
Finland lost one of the euro zone's last top-notch credit ratings, with S&P citing risks of protracted economic stagnation because of an ageing population and shrinking workforce.
Helsinki has taken an additional economic hit this year as the sanctions that Moscow and the West imposed on each other over the Ukraine crisis have hurt trade with Russia, one of its main trading partners.
Portugal's ratings remained below investment grade, disappointing some in the market that had expected an upgrade.
"Growth concerns seem to be everywhere you look so it all feels fairly constructive (for bonds)," one trader said. German 10-year Bund yields, the benchmark for euro zone borrowing costs, fell 2 basis points to 0.87 percent, not far from last week's record low of 0.859 percent.
French and Finnish yields were flat to slightly lower at 1.25 percent and 1.00 percent, respectively - also not far from their record lows.
The growth concerns have been fuelling expectations that the European Central Bank could eventually launch a large-scale bond-buying programme to give the economy a shot in the arm and lift inflation from near-zero levels.
"As long as markets are expecting the ECB to buy government bonds, rating downgrades, particularly from the best or second best (rated) euro zone members could not be
(negative) for the bond market," said Marius Daheim, chief strategist at Bayerische Landesbank.]
Federal Reserve officials said on Saturday the slowdown in the global economy could delay an increase in US interest rates if serious enough.
Italy will kick off a busy week in terms of debt sales in the euro zone with an auction of as much as 6.75 billion euros of 2018, 2021 and 2044 bonds. Germany, France and Spain are also due to sell bonds this week.
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