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German yields track U.S. Treasuries to hit 5-week high

By Olga Cotaga

LONDON, Aug 13 – Euro zone yields rose, with German 10-year borrowing costs hitting five-week highs as global bond markets tracked a rise in Treasury yields before a record U.S. bond auction

A deluge of new debt in the United States, with sales of $112 billion in coupon-bearing debt scheduled for the week is due to culminate on Thursday in a $26 billion 30-year auction.

ING analysts said the supply carried the “risk of more pain for Treasury longs” even though “there is no strong fundamental driver for the rise in rates”.

With 10-year U.S. yields at five-week highs of 0.695%, German 10-year yields were up 4 basis points on the day at -0.41%, having earlier hit a high of 0.396%

German 30-year year borrowing costs rose as high as 0.05%, also a five-week peak. It had turned positive on Wednesday after a U.S. inflation measure increased by the biggest margin in more than 29 years, lifting yields there.

The moves came even after German consumer prices, harmonised for comparability with other European countries, were confirmed down 0.5% in July from the previous month

Rabobank strategist Lyn Graham-Taylor said thin liquidity was also contributing, predicting bond markets would stabilise because “the bottom of the economy is as low as people thought, but everyone thinks the recovery is going to be slower than they thought”.

Across the rest of the euro zone, Italian yields rose to 10-day highs around 1.08%, up more than 5 bps on the day after the government saw strong demand in a significant debt sale.

Three-year BTP bonds sold at a 0.08% gross yield, the lowest level February, down from 0.30% in mid-July. . ($1 = 0.8443 euros)

(Reporting by Olga Cotaga; additional reporting by Sujata Rao Editing by Kevin Liffey, Mark Heinrich and Alexander Smith)

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