* Euro zone periphery govt bond yields tmsnrt.rs/2ii2Bqr
LONDON, Dec 9 (Reuters) – Euro zone bond yields picked up on Wednesday as global equities resumed their risk-on rally, but rates remained close to the previous session’s lows and analysts expected them to extend their downward trend before Thursday’s European Central Bank meeting.
On Tuesday, Germany’s 10-year Bund yield fell below 0.6%, its lowest in a month, and Portugal’s 10-year bond yield turned negative for the first time on record, driven by risk aversion in global markets and ECB bond-buying.
That move eased off on Wednesday, as global market sentiment picked up amid optimism about COVID-19 vaccines and hopes for progress in fiscal stimulus negotiations in Washington.
But analysts expected the bond rally to continue before the ECB meeting, at which further monetary stimulus is expected to be announced.
“Real yields continue to drive the Bund rally. Today’s thin agenda should keep the momentum intact and Bunds bid after the -0.6% resistance was taken out,” wrote Commerzbank’s head of interest rate strategy in a note to clients. “We opt for recommend buying on dips.”
At 0810 GMT, Germany’s benchmark 10-year Bund yield was at -0.599%, up around 1 basis point on the day.
Portugal’s 10-year bond yield, which fell on Wednesday to a record low of -0.01%, returned to positive territory, at 0.002% . Spain’s was at 0.035%.
“Given the moves yesterday, Spain might be next to join the negative rates club,” wrote Deutsche Bank strategists.
ING rates strategists wrote to clients that the near-term outlook is clouded by Brexit, partisanship in fiscal stimulus talks in the United States and COVID-19 cases rising in the time it takes to roll out the vaccine – all of which make continued stimulus likely.
“A significant rough patch still has to be overcome that underscores the continued dependence on fiscal and/or monetary intervention,” they wrote.
“As rates markets turn gloomier, that ECB will have a hard time eliciting a dovish market reaction when it unleashes further stimulus tomorrow as widely expected, even as we expect the package itself to be generous.”
The two-day European Union leaders’ summit also starts on Thursday, with Hungary and Poland maintaining their veto of the 1.8 trillion-euro ($2.18 trillion) EU budget and economic recovery fund.
Hungary’s prime minister said on Tuesday he hoped the dispute could be resolved. Poland’s foreign minister said on Wednesday that a compromise could be reached, but another European Council meeting might be needed to work out another deal. ($1 = 0.8244 euros) (Reporting by Elizabeth Howcroft)