Italian, Irish bonds in focus after negative outlook, election

• Fitch affirmed the negative outlook on Italy's investment-grade BBB credit rating on Friday.
• Showing little immediate reaction, Ireland's 10-year bond yield was down 1 basis point on the day at -0.12pc.
• China's central bank will provide special funds for banks to re-lend to businesses combating the virus from Monday.

LONDON: Euro zone bond yields edged down on Monday with Italian and Irish bonds in focus after rating agency Fitch maintained its negative outlook on Italy's debt and Ireland's election result pointed to a shift in its centre-right-dominated politics.

Fitch affirmed the negative outlook on Italy's investment-grade BBB credit rating on Friday.

The agency said Italy's high degree of political fragmentation makes it difficult for the government to develop a credible growth and fiscal strategy that would reduce its debt.

It said high net external debt and weak banking sector asset quality were also weighing on the rating.

Rising in early trade, Italy's 10-year yield was last flat at 0.94pc.

In Ireland, Sinn Fein, the former political wing of the Irish Republican Army which has recast itself as the main left-wing party, secured the largest share of votes in Saturday's election.

Analysts described the result as a seismic shift away from Ireland's century-old, centre-right duopoly.

Showing little immediate reaction, Ireland's 10-year bond yield was down 1 basis point on the day at -0.12pc.

Commerzbank rates strategist Rainer Guntermann expected only moderate selling pressure on Irish bonds, which have weakened in recent days but continue to be supported by the European Central Bank's asset purchases.

In the broader market, attention remains focused on the spread of the coronavirus.

The World Health Organization's top emergency expert said there had been a stabilisation in the number of new cases reported from the epicentre of the virus in recent days.

China's central bank will provide special funds for banks to re-lend to businesses combating the virus from Monday.

Most other 10-year government bond yields were down 1 basis point with Germany's benchmark at -0.39pc, off 3-1/2 month lows at -0.447pc hit last week.

"We would expect the safe-haven safety bid to fade a bit," Commerzbank's Guntermann said, predicting volatile trading in the coming days.

Investor sentiment data measured by the Sentix index is due to be released at 0930 GMT. A Reuters poll expects the index to show declining morale after rising for three consecutive months to hit its highest since November 2018 last month.