German government bond yields set for biggest weekly increase in a year

Long-dated government bond yields in Germany, the euro zone's benchmark issuer, were set on Friday for their biggest weekly increase in more than a year, reflecting easing concern about the global growth outlook and hopes that a no-deal Brexit will be avoided. The first estimate of eurozone inflation in February, released later this session, could provide another test for bond markets.

Data on Thursday showed that the U.S. economy slowed less than expected in the fourth quarter, easing fears that a recession may be around the corner. China's factory activity contracted for a third straight month in February but at a slower pace, data on Friday meanwhile showed. In addition, developments in Britain appear to have removed the immediate threat of disorderly exit from the European Union on March 29. That has sparked selling in British gilts, and in turn, weighed on safe-haven bonds in other developed markets.

German 10-year bond yields are up almost 10 basis points this week and set for their biggest weekly rise since February 2018. British 10-year bond yields have jumped 15 bps this week in their biggest weekly rise since October. U.S. Treasury yields are around 7 bps higher on the week.

"The market was moving into position for a worst-case scenario and things have brightened up a bit," said ING senior rates strategist Benjamin Schroeder. "We see some signs of promise on Brexit, ECB officials have curbed dovish expectations and we had the U.S. data yesterday, so a lot of things are falling into place that paints a less pessimistic picture than before." In early Friday trade, Bund yields touched a three-week high at 0.197 percent. Other higher-rated bond yields in the eurozone were also higher, although lower-rated Italy benefited from increased risk appetite globally.

Italian bond yields were down 2 to 3 bps. Greece's 10-year bond yield touched 3.647 percent, its lowest level in over a year, before an S&P Global ratings review after the market close. S&P rates Greece B+ with a positive outlook.

Analysts at Commerzbank said a rating upgrade could encourage Greece to come to the market next week with a new 10-year bond. Greece may attempt a bond sale in March, it is second since it emerged from an international bailout programme last August, sources close to the matter said on Tuesday.

(Reporting by Dhara Ranasinghe, editing by Larry King)