By Dhara Ranasinghe
LONDON, Dec 6 – Yields on top-rated German government bonds held near six-month lows on Thursday, after the arrest of a top executive of Chinese tech giant Huawei renewed concern about global trade wars and dealt world stock markets a fresh blow.
Italy’s bond market, usually vulnerable to a selloff in other risk assets, held its ground thanks to signs that Rome is likely to make changes to its controversial 2019 budget and prevent a showdown with the European Union.
Across the single currency bloc, benchmark 10-year bond yields were 1-2 basis points lower in early trade. In Germany, the bloc’s benchmark bond issuer, 10-year bond yields dipped to 0.25 percent — within sight of six-month lows reached on Wednesday.
Bund yields are not far off lows since at the peak of a rout in Italian bond markets in late May, reflecting uncertainty in world markets regarding trade tensions, the growth outlook and next week’s key vote in the British parliament on Prime Minister Theresa May’s Brexit deal.
“We are approaching year-end, and no one wants to take on risk,” said DZ Bank rates strategist René Albrecht, referring to the falls in German Bund yields.
European stocks opened more than 1 percent lower, tracking heavy falls in Asia.
The selloff followed news that the daughter of Chinese tech giant Huawei’s founder has been arrested in Canada and is facing extradition to the United States, dealing a blow to hopes of an easing of Sino-U.S. trade tensions.
Uncertainty ahead of a meeting of the Organisation of the Petroleum Exporting Countries (OPEC)on Thursday also supported demand for bonds, analysts said.
The meeting is expected to result in a supply cut aimed at draining a glut that has pulled down crude by 30 percent since October.
Italy’s bond market was steady in the face of a selloff in world risk assets, drawing support from positive noises from Rome on the 2019 budget. Italy’s government will make a final assessment on Thursday of the costs of the main measures contained in its 2019 budget, Deputy Prime Minister Matteo Salvini said. The European Commission has rejected Italy’s expansionary budget and called on Rome to make changes to prevent a disciplinary procedure that could lead to fines.
Italy announced late on Wednesday that it would carry out a syndicated exchange transaction where the Italian Treasury will buy back some short-dated Italian and tap a three-year bond, maturing in 2021.
(Reporting by Dhara Ranasinghe, editing by Larry King)