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German 30-year bond yield rises into positive territory

By Yoruk Bahceli

By Yoruk Bahceli

LONDON (Reuters) - Germany's 30-year government bond yield briefly rose into positive territory on Tuesday for the first time in over a month, lifted by expectations for fiscal stimulus and caution over the scale of stimulus the European Central Bank might deliver this week.

Germany can counter a possible economic crisis by injecting billions of euros into the economy, Finance Minister Olaf Scholz said on Tuesday during a parliament budget debate, signaling readiness for a big stimulus package if the economy tips into recession.

Scholz also said that Germany was in a position to tackle a potential crisis thanks to its solid budget planning and its policy of no new debt.

"If those [debt] rumors actually become true and you got a strong fiscal boost from the German side it would be worth taking a look [back] at how markets reacted [to inflationary expectations] following the U.S. presidential election following Trump's election in 2016," said KBC rates strategist Mathias van der Jeugt.

"The numbers [debt] they are constitutionally allowed [to raise] won’t be a market changer, but if they say we'll throw our shoulders completely behind the project, then it might be a game changer and probably be taken as an example for the rest of the euro zone."

On Monday, Reuters reported Germany was considering creating a "shadow budget" to boost public investment above and beyond limits set by its national debt rules, sparking a bond sell-off.

The 30-year German Bund yield rose as much as 4 basis points on Tuesday to 0.008%, its highest since early August, before returning to negative territory.

A return of the 30-year bond to a positive yield would mean the entire curve of the euro zone's benchmark bond issuer would no longer be in negative territory.

Most long-dated euro zone government bonds rose 1 bps on the day. Analysts say big moves are unlikely before Thursday's ECB meeting.

The German debt news "has pushed the market in a way that it was likely to go anyway. But the real story is expectations from the ECB and improvement in political sentiment," said ING senior rates strategist Antoine Bouvet.

Global risk sentiment has been helped by comments from U.S. Treasury Secretary Steven Mnuchin on Monday that trade talks with China had made "a lot of progress".

No-deal Brexit risks have also eased and Italy has managed to avert a snap election.

Italian longer-dated bonds outperformed euro zone peers, with 30- and 50-year yields down almost 2 bps.

Former Democratic Party Prime Minister Paolo Gentiloni has been named as the European Union's economic affairs commissioner, an appointment that is expected to smooth ties with Brussels after months of tension.

Elsewhere, the Netherlands sold 1.54 billion euros of bonds maturing in 2029 at an average yield of -0.427%.

(Reporting by Yoruk Bahceli, editing by Larry King)