* Italy/Germany bond yield gap well off highs
* U.S., European fiscal stimulus give heart to investors
* But lock downs could severely hurt global economy
* Eurozone periphery bond yields tmsnrt.rs/2ii2Bqr
By Abhinav Ramnarayan
LONDON, March 25 (Reuters) – Bond market participants breathed a sigh of relief on Wednesday as eurozone government bonds steadied, following sessions of wild swings driven by the coronavirus crisis and concern over its impact on the global economy.
With policymakers in Europe and the United States approving extraordinary measures to help soothe markets and cushion the devastating impact of the crisis, global markets, including government bonds, were calmer on Wednesday.
The closely-watched spread between Italian and German 10-year bond yields was just a few basis points tighter at 185 basis points, well off last week’s 14-month highs of 319 bps.
“Judging by what we have seen in the last few days, that spread volatility should continue to stabilise from the highs we have seen recently after quite swift responses from the U.S.,” said DZ Bank rates strategist Christian Lenk.
U.S. senators and officials in President Donald Trump’s administration overnight agreed on a massive economic stimulus bill to alleviate the economic impact of the coronavirus outbreak.
There will be “no limits” to the eurozone’s response to the rapidly spreading coronavirus outbreak, Eurogroup chief Mario Centeno said on Monday.
Germany’s 10-year government bond, the benchmark for the region, saw its yield edge a basis point higher to -0.31%, a move mirrored by other high-grade government bonds. ,
Italian 10-year borrowing costs were unchanged at 0815 GMT at 1.59%; nearly half last week’s high of 3.01%.
Other government bond markets referred to as peripheral, such as Spain, saw a pick-up in demand and were 2-3 bps lower across the curve.,
“Risk assets bounced yesterday in the aftermath of positive noises for the U.S. fiscal deal’s progress and the Fed’s commitment to buy unlimited U.S. Treasuries and MBS,” Mizuho analysts said in a note.
“Further headlines around Germany’s renewed political commitment to spend, the likelihood of agreement on ESM borrowing, and the tentative signs that Italy’s death rate now appears to be levelling off gave them further support.”
Lenk of DZ Bank said the relative calm in markets depended on the success of the battle to contain the spread of the coronavirus, and also on how long the lock downs continue and the potential impact on supply chains and industry.
Surveys this week showed business activity collapsed from Australia, Japan and Western Europe to the United States at a record pace in March as measures to contain the coronavirus pandemic hammered the world economy. (Reporting by Abhinav Ramnarayan; editing by Barbara Lewis)
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