Euro zone periphery govt bond yields http://tmsnrt.rs/2ii2Bqr

LONDON, Oct 1 (Reuters)German government bond yields edged higher on Thursday, after posting their biggest monthly drop in five months in September, as appetite for riskier assets firmed before the release of European manufacturing survey data.

The overnight newsflow was mixed as U.S President Trump signed a stopgap funding bill to keep the government running while officials have yet to agree on providing further COVID-19 stimulus.

Investors will be closely watching PMI data. Estimates suggest revised French, German, and eurozone figures will show no change from the already released figures.

“Today’s data may give the impression of an improving picture – if PMIs and the ISM manufacturing both rise as expected, and U.S. inflation moves closer towards target,” Mizuho strategists said in a daily note.

In early London trading, German ten-year government bond yields DE10YT=RR edged 2 bps higher at minus 0.5090%. They fell to a near two-month low of -0.55% on Wednesday.

Market watchers said the rise in yields was likely temporary and reflected a lack of market activity in Asia with China closed for all of next week and Korea shut for the rest of the week.

Renewed concerns about the economic impact of rising coronavirus cases in Europe, weak inflation, and U.S. election uncertainty is likely to keep demand for fixed income assets intact.

Peripheral government bonds in Italy and Portugal held firm after European Central Bank chief Christine Lagarde set the scene on Wednesday for changing the ECB’s strategy to align with that of the U.S. Federal Reserve, possibly including a commitment to let inflation overshoot after it has been low for too long.

That kept yields on benchmark ten-year Italian bonds IT10YT=RR pinned at 0.871%, not far from an October 2019 low of 0.827% hit last month.

(Reporting by Saikat Chatterjee; Editing by Barbara Lewis)

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