German 10-yr bond yields hits three-month high at 0.5 pct

LONDON: Germany's 10-year bond yield briefly rose to three-month highs on Wednesday, hitting the key 0.5 percent level against a backdrop of new supply, growing risk appetite globally and stronger-than-expected British inflation data.

A selloff in Italian bonds, however, tempered the rise in German yields. Italy's populist ruling coalition again called on Economy Minister Giovanni Tria to allow greater deficit spending in next year's budget.

Germany sold around 2.43 billion euros of 10-year Bunds in what analysts say is one of the heaviest weeks for debt supply in months for the euro zone.

In addition, data showed British inflation jumped unexpectedly to a six-month high in August -- providing a fresh impetus for investors to sell bonds globally.

British 10-year gilt yields rose to their highest since February and U.S. Treasury yields hit four-month highs above 3 percent.

Germany's 10-year Bund yield briefly touched 0.502 percent , before pulling back to around 0.48 percent to trade flat on the day. It is up around 3 bps this week and 15 bps this month.

"I think 50 basis points has had something of a gravitational pull for the 10-year German benchmark," said Peter Chatwell, head of rates at Mizuho in London. "We are going through a repricing of rate expectations globally."

A rally in world stocks and expectations for another rise in U.S. interest rates next week have both weighed on the world's biggest bond markets.

Morgan Stanley said signs of wage pressures in the United States, euro zone, Britain and Japan helped explain the bond sell-off.

"The data turning collectively better in developed markets leaves the bond market as the main trading tool, thus taking the heat out of the U.S. dollar ... but pushing bonds into bearish territory," Morgan Stanley said in a note to clients.

Italy's bond yields rose, giving up some of their recent hefty falls, as investors digested headlines from Rome.

Italian Deputy Prime Minister and 5-Star Movement leader Luigi Di Maio said on Wednesday he had "full confidence" in Economy Minister Giovanni Tria after local media reports about Tria's possible resignation, adding that the objective was not to reassure markets.

Foreign investors bought a net 8.7 billion euros ($10 billion) in Italian government bonds in July, central bank data showed, after a sharp sell-off the previous two months. .

Italy's 10-year bond yield was last up 5 bps on the day at 2.83 percent -- leaving the gap with German 10-year bond yields at 234 bps compared with around 227 bps late Tuesday.