November 9, 2017 / 12:47 PM / a year ago

UPDATE 2-Sharp sell off in Bund futures pushes up euro zone yields

* Trader cites real money sellers of Bund futures

* Bund yield up for first time in over a week

* Peripheral bonds lose much of recent strong gains

* Euro zone periphery govt bond yields (Writes through)

By Abhinav Ramnarayan and Dhara Ranasinghe

LONDON, Nov 9 (Reuters) - A sell-off in German bund futures on Thursday triggered a broad-based spike in euro zone bond yields, reversing days of strong gains for government bonds in the bloc.

German bund futures, a derivative often used by speculative investors to bet on bond price movements, had hit a high of 163.63 on Wednesday before a two-hour period of intense selling on Thursday morning pushed that back down to 162.50.

“We call the 163 level on the Bund future the magic number when investors begin to take profits and sell,” said DZ Bank strategist Sebastian Fellechner.

A trader said he had heard of some real money investors selling German Bund futures on Thursday morning.

An investment manager independently confirmed this, saying: “Around midday there was some large sales of 10-year Bund futures by a couple of large institutional investors.”

These securities are closely looked at as an indicator of market sentiment, and many euro zone government bonds take direction from it.

The yield on Germany’s 10-year government bond, the benchmark for the region, was up 6 basis points to 0.38 percent; its first daily rise in nearly a week.

Low-rated southern European government bond yields were up 6-9 bps.

“This is partly because of expected supply next week, there will be 25-30 billion euros of new bonds (from euro zone countries) and bonds had rallied quite a lot recently,” said ING strategist Benjamin Schroeder.

“We are now basically back to levels at the end of last week.”

Until Thursday, a European Central Bank decision on Oct. 26 to extend asset purchases well into September has proved a powerful tailwind to bond markets, pushing bond yields from Germany to Portugal to multi-month lows.

Falling U.S. bond yields and benign inflation in both the U.S. and euro zone have added momentum to world bond markets.

The euro zone economy will grow at its fastest pace in a decade this year, the European Commission meanwhile forecast, sharply increasing its projections from earlier this year.

Analysts said this could have added to the bond market sell off.

“Maybe there’s a bit of a view out there that it’s as good as it’s going to get in bond markets so it’s worth taking a bit of profit,” said Rabobank rates strategist Lyn Graham-Taylor.

The Bund yield was 4 bps higher on the day at 0.37 percent , up from a two-month low hit the previous session at around 0.31 percent.

Reporting by Abhinav Ramnarayan and Dhara Ranasinghe, Additional reporting by Danilo Masoni and Saikat Chatterjee; Editing by Alison Williams

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