By Olga Cotaga

LONDON, Oct 7 (Reuters)The price for benchmark German debt increased on Wednesday after German industrial output unexpectedly slipped in August, suggesting the recovery in Europe’s largest economy from the coronavirus shock could be weaker than hoped.

German 10-year yields fell 1.6 basis points to -0.52% DE10YT=RR after inching to a two-week high on Tuesday.

The day before, the gap between German and U.S. 10-year yields US10DE10=RR widened to its largest since March as U.S. yields rose. They gave back those gains after President Donald Trump on Tuesday abruptly cancelled talks in Washington over coronavirus aid.

For the Italian 10-year government bond, the yield fell to its lowest in more than a year at 0.765% IT10YT=RR as traders expected more monetary policy stimulus from eurozone’s central bank. It last traded down 1.6 bps.

On Friday, the Italian 10-year BTP yield fell to a record low of 0.751%, Tradeweb said.

“People think it’s a little bit of a one-way bet on more stimulus being required from the ECB,” said Lyn Graham-Taylor, fixed income strategist at Rabobank.

On Tuesday, dovish comments from the European Central Bank chief raised expectations for further stimulus.

If the euro strengthened, that would increase the likelihood of ECB easing, Graham-Taylor said.

“If the dollar is stronger, it is probably due to some risk-off factors and this is probably also going to encourage the ECB to have to do more easing,” he added.

Traders await minutes from the Federal Reserve to be released later in the day.

ING analysts said they did not expect the minutes “to be an existential threat to the reflation trade taking hold in dollar rates markets.”

Still, forward Fed Fund rates price in the first full hike only by the middle of 2024, which is slightly more hawkish

By Yoruk Bahceli

AMSTERDAM, Oct 2 (Reuters)Italy’s 10-year bond yield fell to a record low on Friday before a key reading is expected to show persistent deflation in the euro area, while investors favoured safe-haven assets after U.S. President Donald Trump tested positive for the coronavirus.

Investors will pour over the first estimate of euro zone inflation for September to gauge just how weak the euro zone economy is amid signs of divisions with the European Central Bank.

Economists in a Reuters poll expect euro zone inflation to have fallen 0.2% year-on-year in September, unchanged from August, the first time the rate was negative since 2016. But markets are likely primed for a lower figure after German and Italian inflation came in far below forecasts this week.

Meanwhile, investors globally shunned risk in favour of safe-haven assets as Trump’s positive test results added to uncertainty around the highly-contested election in November.

Demand for fixed income broadly pushed Italy’s 10-year yield to a record low at 0.75%, down 3 basis points on the day, according to Tradeweb, which cites the August 2030 benchmark.IT10YT=TWEB

Italian bonds continued to see support this week, despite talks of delays to the European Union’s recovery fund, after regional elections in late September reduced the risk of snap national elections.

Safe-haven German 10-year yields fell as low as -0.551% in early trade DE10YT=R just a touch off their lowest in nearly two months hit earlier this week. They were last down 1 basis point at -0.54%. DE10YT=RR

“With Trump testing positive and euro core inflation set to fall to a new record low, a payrolls miss could push Bunds to highs not seen since May,” said Commerzbank’s head of rates and credit research Christoph Rieger.

The 10-year German yield had fallen as low