* Yield of government bonds in the eurozone at the periphery tmsnrt.rs/2ii2Bqr
By Yoruk Bahceli
LONDON, May 28 (Reuters) – Eurozone bond yields were relatively stable at the start of Thursday, with Italian yields nearing their eight-week lows as optimism stemmed from the stimulus package proposal. the European Commission continuing to stimulate the market.
The EU on Wednesday proposed a 750 billion euro stimulus fund, which would offer 500 billion euros in subsidies and 250 billion euros in loans to help its economies affected by coronaviruses recover.
The news has boosted southern European bonds – and Italian debt in particular – supported by the possibility of receiving subsidies that will ease pressure on Italy’s heavy debt, pushing 10-year yields to lows of eight weeks.
On Thursday, the focus remained on the fund and Italian bonds remained close to these levels. 10-year yield was up 2 basis points to 1.51%, just off the eight-week lows at 1.46%
“With the release now of the European Commission’s plan for the recovery of COVIDs, we see that there is room for more positivity in risky assets in the euro area, even if global sentiment is shaken by tensions related to China, “Mizuho analysts told their customers.
“This directly feeds our expectations of outperformance of European risk assets, which will be further helped by a likely expansion of the ECB’s QE next week.”
The markets widely expect the European Central Bank to increase the volume of its bond purchases at its June 4 meeting.
French Finance Minister Bruno Le Maire said Thursday he hopes the European Union will reach agreement on the Commission’s stimulus package in the coming weeks.
Austria said on Wednesday that the EU proposal was a starting point for negotiations, but reiterated its preference for loans.
Germany’s 10-year benchmark return rose 2 basis points to -0.40%, ahead of national inflation figures expected at 1,200 GMT.
These will be monitored before the release of EU-wide inflation on Friday – a key factor guiding thinking about the ECB meeting next week. EU-wide sentiment indicators are also expected on Thursday.
The German economy is expected to shrink 6.6% this year due to the coronavirus crisis before growing 10.2% in 2021, the Ifo Institute said on Thursday. (Report by Yoruk Bahceli; Edition by Toby Chopra)