LONDON: German Bund yields rose on Tuesday after the European Union delayed enforcing new sanctions on Russia and a study from the San Francisco Federal Reserve said the market may be underestimating the pace of US rate hikes.
The sanctions, which target the ability of Russia's top oil producers to raise capital in Europe, were originally due to take effect on Tuesday.
But the EU delayed implementing them to leave time to assess whether a ceasefire in Ukraine is holding.
The economic measures that Russia and the West have taken against each other have darkened the economic outlook in the euro zone and fuelled expectations the European Central Bank may have to ease policy further.
The qualified easing of tensions in Ukraine is causing investors to pare back those expectations slightly, but the market remains cautious. "Geopolitical events have diverted some cash flows. We're seeing ... some outflows from government bonds," ING rate strategist Alessandro Giansanti said.
German 10-year Bund yields, the benchmark for euro zone borrowing costs, rose 4 basis points to 0.98 percent. Bund futures fell 51 basis points to 148.59.
Traders said upcoming debt auctions in Austria, the Netherlands and Germany were adding to selling pressure on top-rated European debt.
On the other side of the Atlantic, monetary policy may be close to heading in the opposite direction, causing selling pressure on government bonds across the board.
A research study showed investors expect the US Federal Reserve to keep interest rates lower for longer and to raise them more slowly than the Fed itself expects.
US two-year yields were up 3 basis points at 0.56 percent, while 10-year yields hit their highest in roughly a month around 2.50 percent.
"Several bits and pieces are putting pressure on the market today: the EU delaying sanctions, the Fed research saying the market was underestimating the path of rate hikes and we also have a lot of supply," one trader said. Other euro zone bond yields were up 2-5 basis points.
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