Italian bond yield gap over Germany near tightest since March

LONDON: Italian government bonds edged lower and the spread over Germany was close to its tightest in five months as more money flowed into the global economy, this time courtesy of the Chinese central bank, boosting stocks and riskier assets globally.

Chinese shares jumped on Monday, led by securities firms, on hopes that capital market reforms would boost revenues and after the central bank injected new funds into the country's financial system.

This added to the unprecedented amount of liquidity pumped into the global monetary system by the US Federal Reserve and the European Central Bank, which has pushed Wall Street to within a sliver of a record high.

In quiet trading, Italian 10-year bond yields edged lower to 1.04pc, compressing the closely-watched Italy-Germany bond yield spread to 146 basis points, close to the tightest level since March.

"Global risk sentiment is still quite supportive, though to a degree the moves are down to the time of the year and lopsided positioning on the part of investors," said Commerzbank rates strategist Rainer Guntermann.

He said peripheral spreads are being pushed tighter by anticipation of European Union unemployment support, which begins in September, and the broader EU recovery fund which kicks in over the next three to four years.

Meanwhile, benchmark German 10-year bond yields dipped slightly to -0.42pc, having climbed eight basis points in the previous week.

The sell-off in high-grade government bonds comes in the face of spiking COVID-19 cases and bleak economic news around the world.

Data showed on Monday that Japan was hit by its biggest economic slump on record in the second quarter as the coronavirus pandemic emptied shopping malls and crushed demand for cars and other exports.

New Zealand's prime minister Jacinda Adern postponed the country's general election on Monday by a month to Oct. 17 as the city of Auckland remains in lockdown due to increasing coronavirus cases.