Euro zone bond yields jump again as oil prices climb, French spread widens

By Harry Robertson LONDON, Oct 8 (Reuters) -

Euro zone yields rose sharply again on Thursday as energy prices climbed, with investors continuing to sell the bonds of more indebted countries such as France and Italy, causing ‌their risk premiums to widen. A global selloff in bond markets, driven by rising bets on central bank rate hikes and worries about government debt loads, has pushed yields to multi-decade highs in many euro zone countries.

France has been hit hardest in recent days and weeks as it struggles to put a lid on ‌its budget deficit of more than 5% of GDP. That has caused a closely watched risk premium on its bonds to surge to its ‌highest since the euro zone crisis of 2012. France's 10-year bond yield rose 6 basis points (bps) to 4.931% on Thursday, not far from the 24-year high of 4.994% touched on Friday.

The spread between French and German 10-year yields - a measure of risk premium attached to France - rose 4 bps to 142 bps. It hit its highest since 2012 last ⁠week at almost ​160 bps. Germany's 10-year bond yield, the ⁠benchmark for the bloc, rose 2 basis points (bps) on Thursday to 3.504%. Yields move inversely to prices.

German bonds have benefited from their status as a safe-haven asset this week. The country's ⁠yields fell sharply last week as those on other bonds jumped, and have risen much less this week than many peers. The catalyst on Thursday was another rise in ​energy prices due to Middle East supply concerns, stemming from the US-Israeli war on Iran and the related conflict between Saudi Arabia ⁠and the Houthis in Yemen.

Brent crude oil rose 3% to $103 a barrel, around its highest in a week. "Risk sentiment remains fragile," said Erik Liem, rates strategist at Commerzbank.

US 10-year Treasury yields, which ⁠set ​the tone for borrowing costs around the world, rose 5 bps to 5.331%. They hit their highest level since 2002 on Wednesday before falling back after a strong auction of 10-year bonds. "Looking to potential impulses for today's session, market attention looks set to remain on potential colour from ⁠the ECB," Liem added.

European Central Bank chief economist Philip Lane is due to speak later on Thursday, after Bank of France head Emmanuel Moulin said on ⁠Wednesday that France does not need ⁠the ECB's support at present. Shorter-dated yields, which are sensitive to ECB rate expectations, rose on Thursday with Germany's 2-year yield up 2 bps at 3.056%.

Yields on German 2-year bonds fell on Wednesday as the sharp selloff in bond ‌markets triggered fears about ‌economic growth, causing traders to reduce their bets on further ECB hikes. (Reporting ​by Harry Robertson;Editing by Elaine Hardcastle)