Euro zone government bonds stabilise after Moderna vaccine optimism

By Stefano Rebaudo and Yoruk Bahceli

MILAN/AMSTERDAM (Reuters) - Euro zone government bond yields were steady on Monday, paring earlier gains after Moderna said its experimental vaccine was 94.5% effective in preventing COVID-19 based on interim data from a late-stage trial.

It became the second U.S. drugmaker after Pfizer last week to report results that far exceed expectations, boosting risk sentiment across markets, which hurt safe-haven government bonds.

Germany's benchmark 10-year Bund yield rose as much as up 3 basis points to -0.52%, although it remained below two-month highs at -0.456% hit last week after the Pfizer news.

It gave up that rise in later trade and was last unchanged on the day at -0.54%.

"The news about Moderna’s vaccine boosted risk sentiment and sent yields higher. But the reaction wasn't as strong as with the same news by Pfizer last week," said Antoine Bouvet, senior rates strategist at ING in London.

"A vaccine available soon is already priced in."

Southern European yields, which also reversed earlier falls on the Moderna news, were lower in late trade, with Italy's 10-year yield down 2 bps at 0.61%, near its lowest in a week.

The earlier rise in German yields had briefly pushed the closely watched gap between its 10-year yield and Germany's - effectively the risk premium on Italian debt - to its lowest since the second quarter of 2018 at 113.3 basis points. That was last up to around 115 bps.

The European Central Bank accelerated its bond buying last week, with overall buying as well as buying under the pandemic emergency purchase programme (PEPP) reaching their highest levels since July, data showed on Monday.

Analysts have been closely watching the weekly pace of purchases, which had not increased meaningfully in recent weeks, even after the ECB pre-committed to delivering additional stimulus in December at its latest meeting in October.

After a speech from ECB President Christine Lagarde last week, analysts expect that to be delivered via an increase to PEPP, and more cheap loans under the Targeted Longer-Term Refinancing Operations programme, intended to bolster lending to small and medium-size business.

"In Europe, there is an upside for the periphery as central bankers discuss December's stimulus package," said Althea Spinozzi, fixed income strategist at Saxo Bank.

In the primary market, Italy started the sale of a five-year U.S. dollar bond, which is expected to price on Tuesday, according to a lead manager memo seen by Reuters.

(Reporting by Stefano Rebaudo in Milan and Yoruk Bahceli in Amsterdam; additional reporting by Abhinav Ramnarayan; Editing by Giles Elgood and Marguerita Choy)