* Euro zone periphery govt bond yields tmsnrt.rs/2ii2Bqr
By Dhara Ranasinghe
LONDON, Oct 8 (Reuters) - Government bond yields across the euro area rose on Tuesday after news of an unexpected rise in German industrial output suggested the bloc’s powerhouse economy may yet skirt a recession.
Greece was also in focus, expected to reopen a 10-year bond as early as this session.
German industrial output rose 0.3% in August, against expectations of a 0.1% drop, providing a shimmer of hope that an expected contraction in Europe’s biggest economy in the third quarter would not be steep.
Spain’s industrial output was up 1.7% year-on-year in August, more than expected.
“The 0.3% increase in German industrial production comes as a relief, and a bit of a surprise,” said Andrew Kenningham, chief Europe economist at Capital Economics. “However, we doubt that this marks a turning point.”
In early trade, most 10-year bond yields were 2-3 basis points higher on the day, with Germany’s benchmark 10-year Bund yield at -0.56%.
Analysts said a positive tone in world markets also pressured safe-haven debt markets, with the spotlight on this week’s U.S./China trade talks.
U.S. and Chinese deputy trade negotiators on Monday launched two days of talks aimed at paving the way for the first minister-level negotiations in months.
“News that the trade delegation is broader than anticipated suggests that the topics under discussion could be broader,” said Benjamin Schroeder, senior rates strategist at ING.
“There is positive risk sentiment and the German data is adding to that.”
New bond supply added to upward pressure on yields, with the Netherlands and Austria expected to sell bonds later this session. The United States is expected to sell some $78 billion worth of notes and bonds this week.
In addition, Greece could reopen its 10-year bond, analysts said. On Monday, Greece said it had appointed banks to reopen an outstanding debt issue due March 2029.
A banker on the deal said that it made sense for Greece to add to the original bond, which had a relatively small size, rather than consider issuing a new longer-dated issue.
Athens is taking advantage of record low yields in the euro zone to beef up cash reserves and add liquidity to its shallow bond market.
Italy, meanwhile, was also in focus amid expectations that it is poised to issue a dollar bond.
Italy has mandated Barclays, HSBC and JPMorgan for a multi-tranche, U.S. dollar bond issue, Refinitiv’s IFR service reported on Monday. (Reporting by Dhara Ranasinghe and Abhinav Ramnarayan; Editing by Kevin Liffey)