* Euro zone periphery govt bond yields tmsnrt.rs/2ii2Bqr (Adds Ifo Institute survey results, updates prices)

By Abhinav Ramnarayan

LONDON, Aug 25 (Reuters) – Euro zone government bond yields edged higher on Tuesday as a survey showed business morale in Germany rising more than expected, pointing towards a rebound in Europe’s largest economy from its worst quarter on record.

Germany’s Ifo Institute said its business climate index rose to 92.6, its fourth monthly increase in a row and better than economists had expected, boosting hopes that German companies are recovering from the coronavirus shock.

Analysts said that would be a further sign that Germany’s 130 billion-euro ($153.40 billion) stimulus package is helping power a recovery.

“It does not take a rocket scientist to predict that the (German) economy will have one of its best quarterly performances ever in the third quarter,” said Carsten Brzeski, chief economist for the euro zone at ING. “All activity indicators point to a continuing increase during the summer months.” Germany suffered a record 9.7% contraction in the second quarter as private consumption, investments and exports all collapsed in the COVID-19 pandemic.

Germany’s 10-year bond yields, the benchmark for the region, rose 3 basis points to -0.46%, now in the higher end of the August trading range of -0.56% to -0.40%.

Other euro zone bond yields, from Netherlands to Italy, were up 2 to 5 basis points, with Italian 10-year yields hitting a one-week high of 1.06%.,

The Italy-Germany 10-year bond yield spread was wider at 151.7 bps but still below its August high of 158 bps.

Positive noises on U.S.-China trade negotiations, with both sides reaffirming their commitment to the Phase 1 trade deal, and talk of a COVID-19 treatment are also helping stabilise sentiment and reduce demand for safe-haven euro zone bonds. ,

Also on Tuesday, Germany will sell 6 billion euros of two-year bonds, while a consumer confidence reading in the United States is due later in the session. ($1 = 0.8475 euros) (Reporting by Abhinav Ramnarayan; Editing by Kirsten Donovan)

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