German 10-year bond yields hit highest in over 3 weeks

Euro zone government bond yields were set on Friday for their biggest weekly jump since mid-April, with German 10-year yields rising to their highest in over three weeks on optimism about the U.S. debt ceiling and strong economic data.

Euro zone government bond yields were set on Friday for their biggest weekly jump since mid-April, with German 10-year yields rising to their highest in over three weeks on optimism about the U.S. debt ceiling and strong economic data. Germany's 10-year bond yield, the benchmark for the euro zone, rose as high as 2.499%. It has risen around 21 basis points (bps) this week -- the biggest weekly increase since the week ending April 14.

Investors had bought government bonds - pushing their yields lower - due to fears about the U.S. debt ceiling stand-off. Yet a commitment from Democrats and Republicans this week to strike a deal on raising the $31.4 trillion borrowing limit, and avoid default, has improved investor sentiment.

"There are more hopes now that it could be solved so that is boosting sentiment and lifting rates, and also affecting stock markets," said Jussi Hiljanen, head of European rates strategy at lender SEB. The U.S. S&P 500 stock index has risen 2% so far this week. Europe's Stoxx 600 was up 1% for the week as of Friday.

Italy's 10-year yield was a touch higher at 4.318%, putting it on track for a weekly increase of 13 bps. Germany's 2-year yield, which is sensitive to interest rate expectations, was up 5 bps at 2.84%, having touched its highest since late April. It has risen 16 bps this week.

Strong economic data has helped to push up bond yields, and has caused some central bankers to publicly make the case for more rate hikes. U.S. jobless claims fell more than expected last week and the Philadelphia Fed's manufacturing business survey for May also beat expectations, data showed on Thursday.

On Friday, data showed that German producer prices rose in April, defying expectations of a fall. Dallas Federal Reserve Bank President Lorie Logan on Thursday said she was concerned inflation was not cooling fast enough to allow the Fed to pause rate hikes in June.

Some ECB officials have voiced similar views. On Friday, ECB chief Christine Lagarde signalled more monetary tightening, saying the central bank needs to keep interest rates high to curb inflation in the medium term. Investors are due to hear from Fed Chair Jerome Powell and ECB policymaker Isabel Schnabel later in the session.

Ratings agency Moody's is scheduled to review Italy's credit rating on Friday. There is a chance Italy's Baa3 rating could be downgraded to "junk", although analysts said this was unlikely. The Italian/German 10-year bond yield spread was about 4 bps tighter at around 183 bps.

(This story has not been edited by Devdiscourse staff and is auto-generated from a syndicated feed.)