* Fall in bond yields
* Movements are moderate before the ECB meeting and the US presidential election
* Eurozone Periphery Government Bonds produce tmsnrt.rs/2ii2Bqr (add details, update prices)
AMSTERDAM, October 27 (Reuters) – Eurozone bond yields fell on Tuesday as the continued rise in coronavirus cases and lack of progress on the US stimulus kept investors cautious ahead of the European Central Bank meeting of Thursday.
White House economic adviser Larry Kudlow said on Monday that talks over a coronavirus relief package had slowed down, although House Speaker Nancy Pelosi was hopeful that a deal could be reached before the November 3 elections.
At the ECB meeting, the bank is not expected to change its policy, but investors will be looking for clues as to the likelihood of it adding to its bond purchases in December.
Eurozone banks restricted access to business credit in the third quarter and expect to tighten further amid growing worries about a new wave of coronavirus cases, showed Tuesday an ECB investigation.
“Ahead of Thursday’s ECB and the US presidential election in just a week’s time, we expect the EGB (euro government bond) markets to remain in a tight range without any additional risk positions being taken. ”, Piet Haines Christiansen, chief analyst at Danske Bank, told clients.
The German 10-year bond yield was last down 1 basis point to -0.58%.
Although rising coronavirus cases in Europe raise alarm bells, German safe-haven bond yield remains above seven-month low of nearly -0.64% it reached earlier in October as the second wave of the virus struck.
Italian 10-year bond yields, which fell 9 basis points on Monday to a week-low after S&P raised Italy’s credit rating outlook, fell 1 basis point at -0.72%.
Not much has changed from the previous day, Italian bonds had already erased much of their lead in subsequent negotiations on Monday amid coronavirus concerns and the setback in US stimulus hopes.
This means that the spread between Italian and German 10-year yields – in fact the risk premium on Italian debt – is only 3 basis points lower than the Friday close, before the outlook leveled. from S&P, around 130 basis points.
“With almost unanimous expectations, including our own, of a QE (quantitative easing) boost in December, we don’t see how the ECB could deliver a sufficiently accommodating message to validate them on Thursday,” analysts said. from ING to customers.
“The higher volatility bond markets, those which depend most on ECB intervention to maintain prices, appear to be the most at risk,” they said, estimating that the Italian 10-year spread could widen. at 140 basis points.
In the primary market, Italy sold € 3.25 billion in an auction of an inflation-linked bond due 2026 and a two-year zero coupon bond. (Reporting by Yoruk Bahceli. Editing by Larry King and Jan Harvey)