* German Bund yield hits new 6-month low
* 10-year UST yield below 1%
* Focus on the action of the central bank
* Government bonds from the periphery of the eurozone, tmsnrt.rs/2ii2Bqr yields (updated with the latest price action, adds a quote)
By Dhara Ranasinghe
LONDON, March 5 (Reuters) – German 10-year benchmark Bund yield fell to a new six-month low on Thursday as stock market sentiment worsened and cautious about the epidemic of coronavirus has brought investors back to safe bond markets.
Costs of borrowing in the euro area had increased slightly at the start of trade, as the sense of risk had recovered overnight. But they quickly fell again after the stock markets were subjected to renewed selling pressure from other companies warning of the damage caused by the coronavirus.
The yield on the German 10-year Bund, considered one of the safest assets in the world, fell 4 basis points to -0.68%, a six-month low. German two-year yields also hit a six-month low, falling to -0.86%.
Yields on most top-rated eurozone bonds also fell 2 to 3 basis points, while southern European bonds were under renewed selling pressure from the liquidation of risky assets .
10-year Italian bond yields were up 6 basis points to 1.08%.
“It is fair to say that there is a continual back and forth in the markets as to how to exchange the conflicting forces of fundamental concern over the impact of the coronavirus and expectations of stimulus,” said Lyn Graham-Taylor , rate strategist at Rabobank.
Yields on 10-year US Treasuries fell below 1% and fell 6 basis points over the day.
German Bund yields have fallen by around 25 basis points in the past two weeks as investors anticipated the coronavirus epidemic which has hurt economic growth.
Investors are also waiting to see what measures the European Central Bank (ECB) will take to contain the fallout.
The United States, Australia and Canada all cut rates this week in response to the coronavirus. “Things can change quickly, so don’t rule anything out, but we’re only a week away from the meeting (of the ECB), so I doubt they’ll act before that,” said Antoine Bouvet, senior rate strategist at ING.
“Even next week, I’m really not sure they’ll cut it. On the one hand, there is not much political space to be relaxed. On the other hand, more and more emphasis has been placed on the negative impact of non-standard measures, so this is a difficult argument to make. ”
The ECB held a conference call on Tuesday to assess the impact of the coronavirus, but no political action was on the agenda, sources said.
While expectations of lower rates jumped in the eurozone last week, an emergency rate cut by the ECB seems more complicated than it was in the United States, as rates are already negative.
According to source-based reports, the ECB is considering options such as a longer-term targeted refinancing operation (TLTRO) targeting small and medium-sized enterprises in the euro area of 19 countries.
Report by Dhara Ranasinghe; Editing by Larry King and Alex
Richardson