(Corrects to add missing word in headline)

* Euro zone periphery govt bond yields tmsnrt.rs/2ii2Bqr

By Abhinav Ramnarayan

LONDON, July 29 (Reuters) – Eurozone government bond yields edged up before a U.S. Federal Reserve meeting later on Wednesday, but remained within touching distance of two-month lows as a variety of negative headlines hurt market sentiment.

Poor corporate earnings, record deaths from COVID-19 in six U.S. states and frictions over a stimulus plan in the United States have hit risk sentiment this week and had investors retreating to safe assets such as government bonds.

Fears of rising COVID-19 infections also hit Asia and Europe this week, with several countries imposing new restrictions and Britain quarantining travellers from Spain.

“The tally of COVID-19 cases is surging further, not only in the U.S., with infection rates rising again in Europe as well during the holiday period, maybe due to a certain excessive carefreeness,” analysts at DZ Bank wrote in a note.

“Meanwhile, the consensus over a second coronavirus relief package which could be used to alleviate a second wave of the pandemic is tottering, thus spawning growing concerns about the outlook for the U.S. economy.”

German 10-year Bund yields dropped to a two-month low of -0.52% in early trade before rising to -0.496%, up about 2 basis points on the day.

Other highly rated euro zone countries, such as The Netherlands and Austria, also saw their government bond yields hit the lowest level since mid-May before rising about 2 to 2.5 bps each.,

Worries over the U.S. economy expressed themselves in the dollar, which is near a two-year low against a basket of currencies and is down over 9% since the March high.

A statement and news conference at the end of the two-day U.S. Federal Reserve meeting is due later in the session. The Fed said on Tuesday it would extend several of its lending facilities through the end of the year.

Germany, meanwhile, raised 2.924 billion euros from the sale of 15-year Bunds through an auction. (Editing by Larry King)

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