UPDATE 1-Euro zone bond yields fall as stock markets tumble

(Recasts, adds details, updates prices)

Sept 20 (Reuters) – Euro zone bond yields fell on Monday as weaker commodity prices, worries about Chinese property company Evergrande and caution ahead of this week’s U.S. Federal Reserve meeting pressured stocks and boosted safe-haven government bonds worldwide.

Germany’s 10-year yield, the benchmark for the euro zone, was down 3 basis points to -0.31% by 1028 GMT. Bond yields move inversely with prices.

That pushed it well below the 10-week high touched on Friday at -0.265% after a report suggested the European Central Bank expects to hit its inflation target by 2025.

Other 10-year euro area bond yields were 1-3 bps lower.

“It’s better to be invested in sovereigns than equities and other riskier assets, that’s what we’re seeing today,” said Daniel Lenz, rates strategist at DZ Bank.

Referring to the Evergrande issue, he added: “Nobody knows really whether this is a crisis in China which is being solved quickly or the beginning of something bigger.”

Investors are also concerned about what the stress at Evergrande will mean for China’s economy and its growth prospects, Lenz said.

After Friday’s ECB-driven sell-off, focus on Monday will be on the European Central Bank again, with board member Isabel Schnabel due to give a speech at 1035 GMT.

There was little reaction in Portuguese and Greek bonds to rating upgrades from Moody’s and DBRS respectively.

DBRS upgraded Greece to BB, two notches below investment-grade, with a positive outlook, meaning that a further upgrade is likely.

“The upgrade for Greece together with a positive outlook from DBRS should further fuel expectations for a return to investment-grade next year,” said Rainer Guntermann, rates strategist at Commerzbank.

The ECB made an exception to include junk-rated Greek bonds in its pandemic emergency bond purchases last year. But once those expire next year eligibility for the ECB’s conventional bond purchases requires at least one investment-grader rating.

That may take at least until autumn next year as Greece would need to secure a two-notch upgrade from one of three rating agencies to comply, Guntermann said.

Political uncertainty in Germany ahead of Sunday’s election, where the Social Democrats are leading opinion polls that point to a highly fragmented outcome, is also keeping the eurozone’s debt investors on their toes this week.

After a hefty pace of issuance last week, debt supply will slow this week. Around 10.5 billion euros of euro area government bond issuance is expected, the lowest level in six weeks, according to Commerzbank.

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