UPDATE 1-German debt yields near 1-week lows before EU meeting

* Euro zone periphery govt bond yields tmsnrt.rs/2ii2Bqr (Adds details)

LONDON, July 8 (Reuters) – German government bond yields slipped towards a one-week low on Wednesday as weaker global stock markets prompted a bout of risk aversion after a rally in risky assets in recent weeks.

With little important economic data on the calendar, bond markets are focused on a meeting between European Union officials to discuss the shape of the EU’s recovery fund.

On Wednesday, German Chancellor Angela Merkel will travel to Brussels to discuss the fund, which investors hope will be provided in part as grants, helping economic recovery in southern European states and easing concerns that they could be saddled with more debt.

“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.

Yields of German 10-year government debt edged more than 2 basis points lower to -0.486%, just above a one-week low of -0.495%.

Government debt in countries such as Italy has rallied and safe-haven assets have been under pressure since the proposal of an EU recovery fund was floated, but the outcome of the meeting later on Wednesday might fuel some profit-taking.

“The market will be on the lookout for any leaks around this event, and we therefore see potential for position squaring this morning, especially in BTPs,” Mizuho strategists said in a note.

Italian bonds have been the biggest beneficiary of the EU recovery fund proposals. Yields for 10-year government bonds fell nearly 40 bps over the past month; they were steady at 1.2780% on Wednesday.

Though debt/GDP ratios of developed countries are expected to rise dramatically following the COVID-19 crisis, they have time to get their houses in order, Barclays said in a report on Wednesday.

Some European countries have raised concerns about the proposed grants, preferring the fund to be provided only as loans.

Elsewhere, British bond yields steadied before news of more stimulus from finance minister Rishi Sunak at around 1130 GMT. He is expected to roll out more measures including tax cuts to counter surging unemployment.

Yields on 10-year British government bonds edged lower to 0.164%.

France is selling an inflation-linked bond due 2036 via a syndicate of banks, according to a lead manager notice seen by Reuters. (Reporting by Saikat Chatterjee; Additional reporting by Yoruk Bahceli; editing by Larry King and Timothy Heritage)

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