* Eurogroup tipped to agree joint debt issuance on Tuesday
* German bond yields rise 7-10 bps across the curve
* Risk assets rally as COVID-19 death toll increase slows
* Euro zone periphery govt bond yields tmsnrt.rs/2ii2Bqr (Adds quote, updates prices)
By Abhinav Ramnarayan
LONDON, April 7 (Reuters) – German government bond yields rose on Tuesday with euro zone finance ministers due to meet later in the day to discuss a joint response to help member countries deal with the economic impact of the novel coronavirus.
Demand for safe-haven Bunds has softened in recent days as the number of new cases and the increase in the death toll from COVID-19 has slowed in several countries including Italy and Spain.
The Eurogroup of finance ministers within the single currency bloc are scheduled to meet later on Tuesday, and analysts expect joint action to help prop up the economies of member states – possibly including even so-called coronabonds.
“Investors have recently been detecting growing public support for the concept of coronabonds in European Commission and ECB circles,” said DZ Bank analyst Daniel Lenz, adding that German ECB Executive Board member Isabel Schnabel was among those who appeared to voice support.
Germany has traditionally opposed the idea of joint debt issuance, being unwilling to effectively back the debt of lower-rated and poorer Southern European countries. Key figures in the German government are yet to be convinced, media reports suggest.
But the idea has gained traction in light of the recent spread of the new coronavirus, which has resulted in more than 28,000 deaths in Italy and Spain alone, the two worst-hit countries.
“In this market environment, Bund yields moved upwards, above all at the long end of the maturity curve,” Lenz said.
German government bond yields rose 7-10 basis points across the curve, with the long-dated 30-year bond up 10 bps at 0.06%, its highest since March 27.
Italian yields were flat to a touch lower on the day, with the benchmark 10-year borrowing costs 2 bps lower at 1.52%, while the closely watched Italy/Germany 10-year bond yield spread tightened 8 bps.
Risk assets rallied elsewhere, with European stocks opening up higher and corporate bond markets also strengthening on the day. Cyprus, one of the lower-rated countries in the bloc, is marketing a seven-year and 30-year bond issuance, according to IFR, Refinitiv’s capital markets publication.
“I hope we will get progress on a coronabond tonight, but more realistically is probably some kind of rescue fund in the making. It should be the minimum of what we can expect,” said Piet Haines Christiansen, chief strategist, ECB and Fixed Income at Danske Bank.
However, ING analysts warned that the Eurogroup “has the potential to spoil the party early” if it does not agree a package.
Expectations are for the European Union, the European Investment Bank and the European Stability Mechanism to all be part of the joint borrowing programme; and any debt issued by these institutions can be supported by the ECB’s bond-buying scheme. (Reporting by Abhinav Ramnarayan; Editing by Pravin Char and Steve Orlofsky)
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