Euro zone bond yields retrace early dip, focus on Brexit

MILAN: Euro zone government bond yields were slightly up on Tuesday, erasing an earlier dip, as the market lacked direction amid concerns about a new strain of the coronavirus and Brexit trade-deal uncertainty.

European Commission President Ursula von der Leyen and British Prime Minister Boris Johnson spoke on disagreements over fisheries that are barring a new trade deal.

The European Union's Brexit negotiator, Michel Barnier, will update the bloc's 27 national envoys on the latest on Brexit at 1500 GMT on Tuesday.

The German 10-year government bond yield was almost flat, after falling 1 basis point at -0.6%.

Countries across the globe shut their borders to Britain on Monday due to fears about a highly infectious new strain of the virus, causing travel chaos.

Analysts forecast yields to move sideways in the Christmas period as the ECB have been pausing its bond purchases between 18th December and 4th January. With such a structural bid-side temporarily missing in the market, little investors are expected to be keen to build positions any longer.

"There is a lot of back and forth in the market and this is going to be the trend for the time being. Virus worries continue to weigh while we are waiting for progress on a possible Brexit deal," Antoine Bouvet, a senior rates strategist at ING, said.

The Italian 10-year bond yield was up 1 basis point at 0.559%.

"Factors impacting the markets are virus trajectories and lockdowns. Besides investors have been positioning for a couple of weeks with low liquidity and possible volatility as ECB will be pausing purchases," Mauro Valle, head of fixed income at Generali Investments Partners.

British 10-year gilt yields were almost flat.

Data showed Britain's economic recovery was a bit quicker than previously thought in the July-September period, while government borrowing soared.

A long-anticipated approval of US stimulus failed to trigger price action as it fell short of hopes that a deal could be as large as $2 trillion.

The US Congress on Monday approved an $892 billion coronavirus aid package, throwing a lifeline to the nation's pandemic-battered economy after months of inaction, while also keeping the federal government funded.