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UPDATE 1-German Bund yield set for biggest weekly rise since U.S. election
March 3, 2017 / 9:06 AM / 9 months ago

UPDATE 1-German Bund yield set for biggest weekly rise since U.S. election

* Bund yields set for biggest weekly rise since Nov

* US rate-hike talk, inflation pick up weigh

* Fed chief Janet Yellen speaks later in day

* Fitch Ratings to review France

* Euro zone periphery govt bond yields (Writes through)

By Dhara Ranasinghe

LONDON, March 3 (Reuters) - Germany’s benchmark 10-year government bond yield was set for its biggest weekly rise since November’s U.S. election on Friday on growing talk of a March U.S. rate rise, rising euro zone inflation and an easing of jitters over elections in France.

Several Federal Reserve officials have made the case this week for another interest rate rise soon, prompting investors to ratchet up expectations for a move at the Fed’s March 14-15 meeting.

Fed Chair Janet Yellen is due to speak later on Friday and could reinforce talk of an imminent rate rise that has sent two-year Treasury yields this week to their highest levels since August 2009.

Also, data this week showing euro zone inflation has jumped above the European Central Bank’s target of close to but below 2 percent has reinforced a view that a pick-up in price pressures and economic growth will make it harder for the ECB to maintain the ultra-loose monetary policy that has long supported bond prices. When a bond’s price rises, its yield falls.

German 10-year Bund yields, steady at 0.31 percent on Friday, were set to end the week 12 basis points higher.

That would mark the biggest weekly rise since the week Donald Trump was elected as U.S. president and bond yields rose sharply as investors bet that large fiscal stimulus under a new administration would boost inflation.

Inflation erodes the value of fixed income assets, forcing yields higher as compensation.

“Reflation bets have returned to the bond market and at the same time political jitters have eased,” said Martin van Vliet, senior rates strategist at ING.

The popularity of far-right, euro sceptic French presidential candidate Marine Le Pen has rattled investors this year and battered France’s government bond market.

But sentiment towards French bonds has improved this week amid further signs that independent centrist candidate Emmanuel Macron is strengthening his position as the frontrunner to win a May runoff to be France’s next president.

The yield on Germany’s two-year bonds, which have benefited from French election jitters, has pulled back from record lows hit last week and was poised to close the week 10 bps higher -- the biggest weekly rise since December 2015.

The spread between French and German 10-year bond yields meanwhile held close to one-month lows hit on Thursday just below 60 bps.

Fitch Ratings is due to review France’s sovereign rating later in the day. It currently gives France an AA rating with a stable outlook.

For Reuters Live Markets blog on European and UK stock markets see reuters://realtime/verb=Open/url=

Reporting by Dhara Ranasinghe; editing by Richard Lough

Our Standards:The Thomson Reuters Trust Principles.
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