UPDATE 2-German bond yields edge off 2-week low as euro area backs fiscal boost

* Euro zone periphery govt bond yields: tmsnrt.rs/2ii2Bqr (Updates prices, changes quote)

By Yoruk Bahceli and Sujata Rao

LONDON, Feb 18 (Reuters) – A euro zone finance ministers’ statement backing more fiscal stimulus to tackle economic downturns lifted German 10-year debt yields off two-week lows on Tuesday, though fears for global growth kept up downward pressure on borrowing costs.

Euro zone bond yields alongside regional and global stock markets were spooked after Apple, the world’s most valuable tech firm, warned it may not meet its March quarter sales guidance set just three weeks ago because of the impact of the virus outbreak

Wall Street fell, with the S&P500 down half a percent and U.S. 10-year yields down four basis points.

However, yields across the euro area edged off lows after Germany’s finance minister and his counterparts in the bloc said they would be ready to spend more if a downturn hits its economy.

The change of wording signals an attitude shift which may lead to EU fiscal rules becoming less strict.

TD Securities strategist Pooja Kumra said those hints at stepping up government spending, as well as Belgium’s successful sale of a 5 billion-euro, 20-year bond had lifted sentiment.

That helped offset a dismal German investor sentiment reading from the ZEW Institute.

“If you see more negative news, we have seen that Bund yields can make their way to -0.70% which we saw in 2019. But there is more focus now on (the possibility of) German fiscal stimulus,” Kumra said.

Germany’s 10-year benchmark yield fell as low as -0.43%, its lowest in two weeks but rose all the way to -0.39% before closing around -0.41%.

Bond markets did not react much to the ZEW survey which showed the mood among German investors deteriorated far more than expected this month.

But investors will likely focus on advance Purchasing Managers Index readings due this week to gauge how factory and services activity shaped up in February

“In January we saw some stabilisation but February data has again started coming in with some weakness. We are looking at the Feb PMIs as the next indicator for how much damage there is from the coronavirus,” Kumra said.

Tuesday’s survey came after last week’s GDP reading which showed the German economy stagnated in the fourth quarter, reversing hopes that the worst may be over for the euro area .

“It’s unlikely that we get the rebound in global growth some were expecting … at the start of the year,” Mizuho strategist Peter McCallum said.

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