UPDATE 2-German debt yields near 1-week low; France sells inflation-linked bond
* Euro zone periphery govt bond yields http://tmsnrt.rs/2ii2Bqr (Adds details on French inflation-linked bond, comments)
By Saikat Chatterjee and Yoruk Bahceli
LONDON, July 8 (Reuters) - German government bond yields slipped towards a one-week low on Wednesday as weakness on global stock markets prompted a bout of risk aversion after a rally in risky assets in recent weeks.
With little important data on the calendar, bond markets focused on a meeting between European Union officials to discuss the shape of the EU's recovery fund, which investors hope will be provided in part as grants. The prospective fund has been one of the main supports for the bonds of highly indebted Southern European countries such as Italy in recent weeks.
German Chancellor Angela Merkel told the European Parliament that member states would need to compromise to sign off the fund. Some Northern European states want the fund to be provided as loans only.
European Council President Charles Michel said much negotiation was still needed.
"There are efforts by the German government to push towards an agreement but, from my point of view, negotiations could get sticky from what we have seen in the past, and, unless we see a clear solution, markets will be subdued," said Rene Albrecht, a rates strategist at DZ Bank.
German 10-year yields were down 2 basis points in late trade at 0.44%, after nearing one-week lows. 10-year Italian bonds were down 2 basis points at 1.27% .
The Spanish government said it was ready to accept some conditions being attached to the recovery fund.
Though the debt-to-GDP ratios of developed countries are expected to rise dramatically as a result of the COVID-19 crisis, they have time to get their houses in order, Barclays said in a report on Wednesday.
In the primary market, France raised 3 billion euros from an inflation-linked bond due 2036 via a syndicate of banks, receiving over 16 billion euros of demand.
Anthony Requin, chief executive officer at France's debt management agency, told Reuters he had been surprised by the amount of interest. Over 100 accounts bought the bond, compared to fewer than 50 for a similar transaction in 2008.
"We have found the guys we see in our nominal auctions showing up in this (order) book as well," he said.
Some investors are betting that inflation could rise as a result of stimulus packages being passed in response to the coronavirus crisis.
Asked to explain the demand, Requin said: "How inflation could evolve in 10-20 years' time remains a very open question ... I think it's fair to say that if you are an asset manager that tends to diversify its holdings, it's not a bad idea to put a few euros inside this bucket." (Reporting by Saikat Chatterjee and Yoruk Bahceli; Editing by Kevin Liffey)
