German government yield up slightly as China promises stimulus

* Euro zone periphery gov’t bond yields

By Olga Cotaga

LONDON, Feb 19 (Reuters) – The safe-haven German government bond yield drifter away from recent lows on Wednesday as pressure from China’s coronavirus outbreak eased somewhat due to a slowdown in the number of new infections and promises of further economic stimulus measures by Beijing.

Chinese policymakers have implemented a raft of measures to support an economy sharply affected by the outbreak, which is expected to erode first-quarter growth.

Firms in China’s virus epicentre of Hubei province will not have to pay pensions and benefits until June. A Bloomberg report said China is mulling cash injections or mergers to bail out airlines.

A day earlier, Germany’s finance minister and his counterparts in the bloc said they would be ready to spend more if a downturn hits its economy.

China reported 1,749 new confirmed cases of coronavirus infections, the lowest daily rise since Jan. 29. The death toll, however, passed 2,000.

The outbreak has hurt economic activities in China, the worlds’ second-largest economy, on which major countries’ growth relies on.

Germany’s 10-year benchmark yield was up 0.5 basis points at -0.41%, with the rest of the euro zone market following suit. The German yield had fallen to a two-week low of -0.43% on Tuesday.

Daiwa Capital Markets’ head of economic research, Chris Scicluna, said euro zone yields got some help from the more reassuring news on coronavirus infections, adding that Apple’s warning about missing sales guidance had dropped off investors’ radar somewhat.

Scicluna said market participants will most likely take a drift from the UK inflation data, due at 0930 GMT.

If core inflation in Britain does not increase, “I would expect to see bond (yields) across the euro area drifting higher,” he said.

Interest rates in Europe were also shielded by comments coming from the Unites States policymakers.

Dallas Federal Reserve Bank President Robert Kaplan on Tuesday repeated his view that the current setting of U.S. interest rates is “roughly appropriate” through the end of this year, even as he noted risks from the flu-like epidemic that has brought parts of China to a halt. (Reporting by Olga Cotaga Editing by Helen Popper)

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