German yields set for biggest weekly jump since October

LONDON: Long-dated government bond yields in Germany, the euro zone's benchmark issuer, were set on Friday for their biggest weekly jump since October, reflecting easing concern about the global growth outlook and hopes that a no-deal Brexit will be avoided.

Data on Friday showing underlying inflation in the single-currency bloc remains subdued prevented a deeper sell-off in euro zone bond markets, keeping German yields from breaking above the 0.2 percent mark for now.

Yet investor pessimism about the global growth outlook and political risks have receded, denting the appeal of safe-haven bond markets.

Data on Thursday showed that the US economy slowed less than expected in the fourth quarter, easing fears that a recession may be around the corner. China's factory activity contracted for a third straight month in February but at a slower pace, data on Friday showed.

In addition, developments in Britain appear to have removed the immediate threat of disorderly exit from the European Union on March 29. That has sparked selling in British gilts, and in turn weighed on safe-haven bonds in other developed markets.

German 10-year bond yields are up almost 9 basis points this week and set for their biggest weekly rise since October , leaving the German bond curve at its steepest in three weeks. Long-term market inflation expectations meanwhile are close to 1.50 percent -- three-week highs.

British 10-year bond yields have jumped 14 bps this week in their biggest weekly rise since October. US Treasury yields are around 7 bps higher on the week .

"The market was moving into position for a worst-case scenario and things have brightened up a bit," said ING senior rates strategist Benjamin Schroeder.  "We see some signs of promise on Brexit, ECB officials have curbed dovish expectations and we had the US data yesterday, so a lot of things are falling into place that paint a less pessimistic picture than before."

Germany Bund yields touched a three-week high at 0.197 percent before drifting down to 0.18 percent after euro zone inflation data.

Consumer inflation in the bloc picked up to 1.5 percent in February, as expected, from 1.4 percent in January.

But underlying inflation, closely watched by the European Central Bank, failed to rise. Price growth excluding food and energy held steady at 1.2 percent, short of the ECB's near 2 percent inflation target.

"Inflation could be one of the things that could be better but it's not picking up substantially," said BBVA bond strategist Jamie Costero.

Other higher-rated bond yields in the euro zone were largely steady. Greek 10-year bond yields touched 3.647 percent , their lowest level in over a year, before a S&P Global ratings review later on. S&P rates Greece B+ with a positive outlook.

Commerzbank said a ratings upgrade could encourage Greece to come to the market next week with a new 10-year bond.