Euro zone bond yields fall again; focus remains on virus, policy measures

• Safe-haven 10-year German bond yields fell 1 basis point to -0.54%.
• Italian 10-year bond yields were unchanged at 1.81%  after falling to a near 10-day low at 1.79% earlier in the session.

LONDON: Euro zone bond yields fell further on Thursday as global markets remained wary of a second wave of coronavirus infections, while European analysts focused on the policy response to the pandemic.

New outbreaks of the coronavirus in South Korea and China aroused concern, sending global stock markets lower, as more countries begin to re-open their economies.

Safe-haven 10-year German bond yields fell 1 basis point to -0.54%. Italian 10-year bond yields were unchanged at 1.81%  after falling to a near 10-day low at 1.79% earlier in the session.

"Swings in risk appetite after yesterday's Mr. Powell's cautious tones and more in general related to the developments of lockdown measures will remain an important driver," UniCredit's analysts told clients, citing a light data calendar on Thursday. U.S. Federal Reserve Chairman Jerome Powell warned of the worst recession since World War Two on Wednesday.

The European Central Bank released its latest economic bulletin, where it reiterated the message that it stands ready to do everything necessary to support the euro area during the coronavirus crisis. It said it is fully prepared to increase the size of its emergency bond purchases and adjust their composition by as much as necessary and for as long as needed.

Germany's constitutional court last week gave the ECB three months to explain the proportionality of its bond purchases or risk losing Germany's Bundesbank as a participant in the programme.

Analysts are also expecting the release of the tax intake forecast of the German government's tax experts.

Germany's federal and state governments are likely to get about 100 billion euros less in tax revenues this year than previously estimated and the deficit is likely to reach 300 billion euros by 2024, the newspaper Bild reported on Monday.

No increase in taxes or contributions are being planned to finance the costs of dealing with the coronavirus, Chancellor Angela Merkel said on Wednesday.

Merkel also said that Germany would act wisely in response to the court ruling against the ECB's flagship stimulus programme and would use the decision as impetus to drive closer euro zone economic policy coordination.

ECB policymaker Luis de Guindos is also scheduled to speak later in the session and is expected to reiterate the message that the ECB is ready to provide more stimulus if necessary.

In the primary market, Ireland sold 1.5 billion euros of nine and 30-year bonds in an auction on Thursday.