LONDON: Italian and Greek government bond yields fell on Monday, as encouraging economic data and an agreement by the United States and China to resume trade talks boosted demand for riskier assets.
After a slow start, buying gathered momentum and 10-year Italian government bond yields fell 8 basis points to 2%, their lowest since May 2018. That pushed the spread over top-rated Germany to 234 bps from around 242 bps late Friday .
The move marks the biggest one-day fall in Italian 10-year yields since June 18, when comments by European Central Bank President Mario Draghi raised the prospect of more stimulus and bond yields fell across the euro zone.
Greece's 10-year yield was last down over 10 bps to a record-low 2.352%. Portuguese 10-year yields also edged towards record lows and were down 1.4 bps on the day at 0.464% .
"Healthier risk sentiment globally and the still strong performance in core bond markets means more and more investors are taking on credit risk, and that means buying Italian and Greek bonds," said Peter Chatwell, head of rates strategy at Mizuho.
Data painted a mixed picture of the Italian economy on Monday. Manufacturing activity declined for the ninth month running in June, but the jobless rate fell below 10% for the first time since 2012.
"Greece alongside Italy are tightening the most," said Christoph Rieger, rates strategist at Commerzbank. "There have been a few stories, like better tax collection in Italy after electronic VAT, which fit the picture."
Factory activity fell in the euro zone overall, with IHS Markit's final Purchasing Managers' Index for June falling to 47.6, its fifth month below the 50 level separating growth from contraction.
"Europe's manufacturing sector continues to shrink noticeably, indicating that a rate cut by the ECB is likely to remain a foregone conclusion," said Marc-André Fongern, a strategist at MAF Global Forex in Frankfurt.
WHO RUNS EUROPE? Attention is also focussing on who will be taking the European Union's top jobs. Leaders are close to picking Dutch socialist Frans Timmermans to head the European Commission, two diplomats said on Monday, though talks have been suspended until Tuesday.
Who will take over the ECB presidency has not been decided, but the nationality of the new Commission head will offer clues at least on where the next ECB boss will come from.
"Any non-German EU Commission President clearly improves the chances for a German ECB President, which is the key thing markets will be looking out for," said Christoph Rieger, rates strategist at Commerzbank.
German 10-year bond yields were flat around -0.32%. French 10-year yields slipped into negative territory again at -0.014%, a record low.
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