Update 1-Eurozone bond yields fall on worries about global economy

(Comments, paragraphs 5-6, update adds prices)

By Stefano Repato

Aug 18 (Reuters) – Euro zone government bonds fell on Friday as worries about the global economy pushed investors into safer debt.

A major Chinese asset manager has told its investors it needs to restructure its debt, saying it needs to restructure its debt.

Euro area borrowing is poised for a correction after the euro area’s benchmark bond yield hit a 12-year high on Thursday.

Bond prices move inversely with yields.

Investors said a relief rally was underway after the recent sell-off as valuations of government bonds remain attractive.

„China’s growth has been disappointing, but not enough to change the global picture. And China’s weakness may even help dampen inflation in developed markets,” said Mark Haefel, chief investment officer at UBS Global Wealth Management.

Germany’s 10-year government bond yield fell 9.5 bps to 2.61% on Friday. After setting three consecutive weekly highs, it is on track to end the week 1.5 bps lower.

It hit 2.714% on Thursday, a 12-year high from 2.77% in early March.

„Amid in-line Japanese inflation figures and risk-off in China, overnight bids across the US Treasury curve are encouraging and appear to keep yields high for now,” said Michael Leister, head of rates strategy at Commerzbank.

U.S. borrowing costs retreated after the 10-year yield on the U.S. Treasury hit its highest level since October and the 30-year yield hit a 12-year high on Thursday. Strong economic data has raised investor expectations that the Federal Reserve will keep interest rates high for longer.

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Japan’s core consumer prices fell in July, supporting expectations that the Bank of Japan (BOJ) will gradually lift monetary easing.

The data showed further signs of a weakening eurozone economy, with building permits for apartments in Germany falling 27% in the first half of the year.

Non-EU UK retailers reported a bigger-than-expected fall in sales in July as shoppers felt the brunt of inflation.

Germany’s 2-year yield fell 2.5 bps to 3.02%.

The German yield curve further narrowed its inverted curve, with the spread between the 2-year and 10-year hitting -35.4 bps, its highest level since mid-May.

Moves by U.S. Treasuries and central banks to keep interest rates high for longer extended yield curves on both sides of the Atlantic.

„One reason for the (recent) relentless rise in US Treasuries is that Chinese selling may be easing to raise funds to prop up the ailing yuan,” said Jeremy Padstone-Carr, European strategist at Raymond James.

China’s yuan firmed against the dollar on Friday, rising from a more than nine-month low in the week after the central bank set a higher-than-expected daily fix.

Italy’s 10-year yield, a benchmark for the euro area periphery, fell 11 bps to 4.30%, with a spread of 169 bps between Italian and German yields. (Reporting by Stefano Repato, Editing by Susan Fenton and Barbara Lewis)

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