UPDATE 1-Euro zone yields slip on economic, coronavirus worries

* German, core yields down 1-2 bps in early trading

* Traders await euro zone PMI numbers on Friday

* Euro zone periphery govt bond yields tmsnrt.rs/2ii2Bqr (Adds details, latest prices)

LONDON, Feb 20 (Reuters) – Euro zone bond yields edged lower on Thursday as concern about a economic slowdown in the region and damage to Asian growth from China’s coronavirus kept core yields near two-week lows.

Worries about the euro zone economy after a string of weak data have kept safe-haven government debt like Germany’s well-supported. Purchasing managers indexes and euro zone inflation numbers are released on Friday.

The economic effects of the coronavirus in the euro zone are still unknown, but yields have already priced in much of the outlook, particularly in Germany, said Jan von Gerich, an analyst at Nordea.

“It seems like the lower yields already account for the weakening outlook,” he said. “The problem for yields to go even lower is that the ECB (European Central Bank) doesn’t seem keen on any more easing. The bulk of the slowdown is priced in.”

ECB minutes from its last meeting will be published later on Thursday. Analysts are not expecting market-moving information.

The 10-year German government bond yield was down 1 basis point at -0.428%, close to three-and-a-half-month lows of -0.447% reached earlier in February. Other core euro zone yields were also down by 1 to 2 basis points.

The coronavirus continues to shape risk appetite. China has reported a large drop in new cases and announced an interest rate cut to buttress its economy. However, South Korea reported a jump in new cases, two people died in Japan and researchers said the virus spreads more easily than previously believed.

Italy’s 10-year bond yield traded down 2 basis points at 0.924%, its lowest since Feb. 3, but the country’s bonds largely shrugged off renewed concerns about a breakdown in the governing coalition as investors hunted for better returns in markets like Italy and Greece.

Analysts at Unicredit said Matteo Renzi, leader of Italy Alive, had further raised tensions within the coalition this week but did not announce any steps that could cause a government crisis.

“We regard recent political developments mostly as noise, but recognize that uncertainty is on the rise,” they wrote, noting that the spread between Italian and German bond yields had widened but remained below 140 basis points.

The Spanish 10-year bond yield dropped 3 basis points to 0.242%, (Reporting by Tommy Reggiori Wilkes, editing by Larry King, Kirsten Donovan)

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