* Euro zone periphery govt bond yields (Updates prices)By Virginia FurnessLONDON, June 10 (Reuters) - Euro zone government bond yieldsrose on Monday as markets were cheered by the United States'trade agreement with Mexico, though pessimism about globalgrowth has kept yields pinned near multi-year lows.
European shares climbed after the United States on Fridaydropped its threat to impose tariffs on Mexico, removing a majorsticking point for equity markets. Markets were also boosted bydata showing that Chinese exports had risen more than expected,despite higher U.S. tariffs. Core bond yields in the euro zone were slower to react, butwere up around three to eight basis points by the close. Aftersuch a strong rally for bonds last week, this meant they werestill near all-time lows, but the improved risk appetite marks ashift in sentiment .
Germany's 10-year bond yield rose for the first time in fivesessions, and was last up four basis points to -0.215%, whileFrench bond yields rose for the first time in seven sessions.
French 30-year bond yields increased almost nine basis points to1.14% , marking their biggest one-day rise sinceDecember 2017.
The move comes on the back of the rise in U.S. Treasuriesyields which were up five to six basis points across the curve.
"The markets are trying to reverse the severe price actionseen last week after the European Central Bank and U.S.payrolls," said Pooja Kumra, European rates strategist at TDSecurities.
"From a policy perspective there is less reason to see bundsgoing further down but the political situation between the U.S.and China will remain the key driver in the coming weeks," shesaid.
ECB policymakers are open to cutting the ECB's policy rateagain if economic growth weakens in the rest of the year and astrong euro hurts a bloc already bearing the brunt of a globaltrade war, two sources told Reuters. Bond yields across the bloc fell to multi-year, if not all-time, lows last week after data showing a sharp slowdown in U.S.non-farm payrolls fuelled speculation of rate cuts by theFederal Reserve.The weak U.S. data came a day after the ECB ruled outraising interest rates in the next year and even opened the doorto cutting them or buying more bonds as risk factors such as theglobal trade war and Brexit drag the euro zone economy down. Italy's government bond yields proved volatile on the daywith the spread of its 10-year debt over Germany indicating thatinvestors remain concerned about the dispute between Italy'sgovernment and the EU over its expansive budget.Its 10-year bond yield rose six basis points at one stage to2.43% before retreating to 2.36%, while the Italy/Germany bondyield gap remained wide at around 258 basis points .
"This is not a normal level of spread," said Mizuho's headof rates strategy Peter Chatwell. "There is a lot of fear andItaly is trading quite differently to other European bondmarkets."Italian deputy prime minister Matteo Salvini offered moreconciliatory comments to the market, saying the government doesnot want to fight with Europe and that he is open to alternativetools to the "mini-bot" securities to solve the problem ofunpaid debt. (Reporting by Virginia Furness; Editing by Ed Osmond and MarkPotter)
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