* Euro zone periphery govt bond yields tmsnrt.rs/2ii2Bqr (Adds details, comments, chart)

AMSTERDAM, Sept 23 (Reuters) – Italy’s 30-year bond yield fell to a record low on Wednesday, still supported by local election results which reduced the likelihood of a snap national election, while broader focus was on weak business activity readings across the euro zone.

Matteo Salvini’s far-right League failed to deal a fatal blow to Italy’s coalition government in regional elections held on Sunday and Monday and voters approved a referendum cutting the number of seats in parliament, both making a snap election less likely.

Italian bond yields tumbled on Tuesday and on Wednesday the 30-year yield dropped to as little as 1.76% in early trade .

10-year yields fell to their lowest since early October last year at 0.83%. Bond yields were down 2 to 3 basis points across Italy’s curve.

“With the odds for snap elections also remote after recent votes, investors should thus remain comfortable to capture carry in BTPs,” Commerzbank analysts told clients, referring to a trade where investors use cheap funds to invest in higher-yielding assets like Italian bonds.

First readings of purchasing manager index data showed euro zone business growth ground to a halt this month. The bloc’s dominant services industry reading contracted unexpectedly, while a Reuters poll had expected modest growth.

That offered marginal support to safe-haven government bonds, with Germany’s 10-year yield last down about 1 basis point to -0.51%, below the -0.539% touched on Monday when concern around the rising number of European coronavirus cases mounted.

“Today’s PMI indicates a slowing in the pace of economic recovery at best and a stalled recovery at worst,” said Bert Colijn, team lead, global macro at ING.

“The impact of second wave related weakness does lead us to think that the recovery is under more pressure than previously thought. For governments and European Central Bank, this will be a wake-up call, if they needed one.”

The growth and inflation outlook in the euro zone has not deteriorated since the European Central Bank’s latest decision, board member Yves Mersch said.

He noted that extending the flexibility of the pandemic bond purchases to the ECB’s conventional bond buying, as a Financial Times story suggested on Sunday, could risk legal scrutiny.

That was in contrast with recent dovish statements from other ECB policymakers, which have led investors to ramp up their bets for rate cuts in 2021.

Germany’s cabinet approved a draft 2021 budget which envisages net new debt of 96.2 billion euros, the second-highest amount since the end of World War Two.

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