January 20, 2020 / 8:31 AM / 3 months ago

Euro government bond yields largely stable, but Italy dips

* Euro zone periphery govt bond yields tmsnrt.rs/2ii2Bqr

By Olga Cotaga

LONDON, Jan 20 (Reuters) - European government bond yields traded neutral Monday ahead of key economic events this week such as the World Economic Forum in Davos and European Central Bank meeting.

Italian yields, however, were down nearly 3 basis points, continuing declines from last week and hitting a one-week low.

The International Monetary Fund is expected to release its world economic outlook update on Monday. On Friday, flash readings of the Purchasing Managers' Index - showing economic trends in the manufacturing and service sectors - are due across major economies.

Ratings agency Fitch affirmed Germany's rating at AAA late on Friday and China's Vice Premier Liu said he will negotiate with U.S. companies to increase imports of U.S. goods, which dampened appetite for safe-haven government debt, keeping yields stable.

"The lack of immediate risk to sentiment should keep rates volatility low," said Antoine Bouvet, senior rates strategist at ING.

"Rates markets are going into Thursday’s ECB meeting with moderate expectations ... the main event will likely be the launch of the ECB’s strategic review," he said.

Volumes were expected to stay thin on Monday, with American and Chinese traders on holiday, analysts said.

The benchmark German 10-year Bund yield was last at -0.212%, barely changed on the day, with most of the euro zone market trading neutral as well.

Italian 10-year yields were the outliers, last down 2.6 bps at 1.36%, extending Friday's falls.

Last week, Italian government bonds rallied and outperformed their euro zone peers after Italy's highest court rejected a proposed change in electoral law that would probably have benefited the far-right League.

U.S. Treasury yields also rose on Friday after strong homebuilding and manufacturing reports and upbeat corporate earnings, while traders eyed the potential impact of a new government bond coming by summer. (Reporting by Olga Cotaga; Editing by Andrew Cawthorne)

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