* U.S. jobs data overshoot forecasts, making rate hike more
* Spain 10-year bond yields reach highest level since June
* German 10/2-yr bond yield gap widest since July 2014
* Japanese investors sell French bonds, buy German debt
* Euro zone periphery govt bond yields tmsnrt.rs/2ii2Bqr
By Dhara Ranasinghe and Abhinav Ramnarayan
LONDON, March 8 Euro zone government bond yields
shot up on Wednesday, helped by U.S. jobs data that beat
expectations and made it more likely the Federal Reserve will
raise interest rates at its meeting next week.
U.S. private employers added 298,000 jobs in February,
according to a report by a payrolls processor on Wednesday, well
above economists' expectations, pushing U.S. Treasury yields
"The hike is now priced in and I fully expect it unless
there is very disappointing data between now and next week,"
said Mizuho strategist Antoine Bouvet.
"Apart from the hike, it is also going to be about whether
the Fed decides it is behind the curve and needs to step up the
pace of hikes. The language will be watched very closely," he
Thomson Reuters data shows the futures market is pricing in
an 85 percent probability of a 25-basis-point increase at the
March 15 meeting.
Euro zone government bond yields rose across the board, led
by Spain's 10-year government bond, which rose 10
basis points to a high of 1.83 percent, its highest since June
Most other euro zone bond yields were up 5 to 9 basis
The European Central Bank is due to meet on Thursday, and
though it is expected to maintain its ultra-loose monetary
policy stance, investors will watch for hints that recent strong
euro zone inflation reports will affect future policy.
German government bond yields had already risen on
Wednesday, pushed higher after lacklustre demand at a sale of
Germany, the euro zone's benchmark bond issuer, sold about
3.16 billion euros of bonds maturing in April 2022. The auction
attracted 3.4 billion euros worth of bids, less than the 4
billion euros offered.
"It was a poor auction this time around and you see that in
the market reaction," said Commerzbank rates strategist David
Schnautz. "We know the ECB is keen on buying much shorter-dated
debt, so that may have tipped the balance against five-year
Germany's five-year bond yield was up 6 basis
points at minus 0.51 percent.
Analysts said they expected demand for German government
bonds to bounce back.
Worries about the euro zone's future as elections in the
Netherlands and France loom, demand for top-rated bonds for use
as collateral in funding markets and the ECB's bond-buying have
all underpinned demand for German bonds in recent weeks.
Data released by Japan's Ministry of Finance on Wednesday
showed Japanese investors were net buyers of about 5.4 billion
euros of German sovereign bonds in January, the largest amount
since October 2014.
At the same time, Japanese investors sold French bonds for
the third month in a row, the longest such spell since mid-2011
France's 10-year bond yield rose to a two-week high at
around 1.04 percent FR10YT=TWEB, pushing the gap over German
peers to around 68 bps -- its widest in a week.
(Reporting by Dhara Ranasinghe and Abhinav Ramnarayan; Editing
by Larry King)