Euro zone yields hold near highs after hawkish ECB comments

LONDON: Euro area borrowing costs held near recent highs on Wednesday, after hawkish comments by ECB rate-setters and as a sweeping reform of EU financial market rules took effect.

The European Central Bank may end its bond buying programme this year if the euro zone economy continues to grow strongly, rate-setter Ewald Nowotny told a German newspaper in an interview released late on Tuesday, echoing comments by ECB board member Benoit Coeure at the weekend.

Yields on 10-year German government bonds traded near two months highs on Wednesday at 0.456 percent. Most other core euro zone yields were flat to a touch lower, having risen sharply on Tuesday.

Ireland is expected to kick off a very busy supply month for euro zone bonds with the launch of a 10-year syndicated issue later on Wednesday.

"The upcoming supply and the comments from ECB policymakers being on the hawkish side acted as a double whammy for rates yesterday overnight," said ING senior rates strategist Martin Van Vliet.

Unprecedented transparency obligations known as MiFID II - or Markets in Financial Instruments Directive II - went into force on Wednesday, impacting European markets across the board.

Under the new rules, trades in financial assets and instruments must all be logged in a repository, forcing banks, asset managers and traders to report detailed information on trillions of euros of transactions.

With bond markets also on alert for Germany's December unemployment numbers and U.S Federal Reserve December meeting minutes due later in the day, the initial impact of the new regulatory regime was limited.

"There was little sign of an impact on trading volumes this morning," said ING's Van Vliet.

The new rules were delayed by a year due to their complexity, and regulators have had to issue eleventh-hour guidance to banks and financial firms to avoid trading freezes as well as calming nerves of those not yet fully compliant.