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Euro zone government bonds tread water amid doubts over US-China trade deal

By Olga Cotaga

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

By Olga Cotaga

LONDON, Nov 21 (Reuters) - Euro zone government bonds were little changed on Thursday, with German 10-year yields up from previous lows, as doubts grew that the United States and China would sign phase one of a trade agreement this year.

Completion of phase one may slide into next year, trade experts and people close to the White House said, as Beijing presses for more extensive tariff rollbacks and the United States counters with heightened demands of its own.

However, Zhang Yansheng, the principal researcher of the state-affiliated think tank China Center for International Economic Exchanges, indicated phase one could be reached this year if there is "no disturbance".

And Chinese Vice Premier Liu He said in a private speech that he was "cautiously optimistic" about reaching a phase-one deal, Bloomberg reported.

"Opposing views like that do not do the markets any favour," said Andy Cossor, rates strategist at DZ Bank.

Ten-year yields across the euro area were mostly flat early on Thursday. Germany, the euro zone's benchmark bond issuer, saw yields neutral at -0.355%. On Wednesday, 10-year German yields fell to -0.384%.

A complication is a bill aimed at protecting human rights in Hong Kong that the U.S. Congress passed this week, infuriating China. President Donald Trump may sign the bill as early as Thursday.

The legislation "could risk progress towards a phase one trade deal," Deutsche Bank analysts said in a note to clients, adding that "if he takes no action over the next ten days, the bill will automatically become law anyway."

An initial trade deal could take as long as five weeks to complete, Trump and Treasury Secretary Steven Mnuchin said last month. But just over five weeks later, a deal is still elusive, and negotiations may be getting more complicated, trade experts and people briefed on the talks told Reuters this week.

Traders will watching for a flash euro zone consumer confidence index later on Thursday. Economists polled by Reuters expected the index to show a slight improvement to -7.3 in November from -7.6 in October.

A better number would "possibly serve as an indication of a small glimmer of hope," said DZ Bank's Cossor.


(Reporting by Olga Cotaga, editing by Larry King)