German Bund yield slips; ECB meeting minutes awaited

LONDON: European government bonds edged down on Thursday, with the benchmark German Bund yield slipping from the 16-day highs it reached the day before, before European Central Bank meeting minutes are released.

Global market sentiment was lifted by optimism about possible US fiscal stimulus, after President Donald Trump sent a flurry of tweets on Wednesday urging Congress to pass aid packages.

The renewed hopes for stimulus saw euro zone yields edge higher on Wednesday.

In the United States, Treasury prices fell and the yield curve steepened. But this move slowed on Thursday, with core euro zone bond yields slipping in early London trading.

Germany's benchmark Bund yield was down less than one basis point on the day at -0.501% at 0720 GMT.

The spread between German and US 10-year yields was 127 bps, close to its widest since March.

"The rise in market rates and steeper curves is a good thing, as it signals some unwinding of pain. And it has been made in America so far; the widening in the spread between USD and EUR market rates confirms this," wrote ING rates strategists in a note to clients.

"It is still closer to crisis levels than to more normal levels, but the path that the spread is on is an auspicious one. What we want to see here is a classic US recovery that helps to lift the likes of Europe in the same direction," they said.

"The bond market is in the early phase of pricing in that exact likelihood. But we still have some way to go."

Italy's 10-year bond yield was also flat on the day, at 0.783% and the spread between German and Italian 10-year yields widened slightly, after reaching its tightest in eight months.

ECB meeting minutes for the September meeting are due at 1130 GMT.

Investors will be scrutinising them for comments about euro strength.

Recent comments by ECB policymakers have curbed market expectations for a rate cut.

"We would argue that the focus in financial markets has now turned to the dismal inflation readings in September as the prime justification for pricing more ECB easing," said ING, adding that no new steps are expected before December.

Elsewhere, Italy is expected to tap up to 2 billion euros worth of long-dated bonds.