German bond yields rise to more than two-week highs on upbeat Ifo

LONDON: Germany's benchmark 10-year bond yield rose to its highest level in more than two weeks on Monday, reversing early falls after a stronger-than-expected German business sentiment survey added to signs of an improving outlook for the euro zone economy.

The Munich-based Ifo economic institute said its business climate index jumped to 103.8 in August after 101.7 in July, suggesting that concerns about a global trade war among company executives in Europe's largest economy have eased.

The August reading beat a Reuters consensus forecast of 101.9.

"The Ifo survey confirms the picture that the slowdown in leading indicators is a temporary blip," said Commerzbank rates strategist Michael Leister.

"If we get more evidence that the data flow is improving, markets will have to reassess whether an (ECB) rate hike that is priced in for only December next year is justified."

Euro zone bond yields were broadly higher in the wake of the Ifo data, having reversed earlier falls on the back of reassuring comments from U.S. Federal Reserve chief Jerome Powell at the Jackson Hole symposium on Friday.

Germany's benchmark 10-year bond yield rose 2 basis points to 0.367 percent, its highest level in more than two weeks.

That left the gap with U.S. Treasury yields at around 245 bps - close to its narrowest since early June as investors bet that perhaps the divergence in the U.S. and euro zone monetary policy outlooks is not as stark as it appeared just a few months ago.

On Friday, Powell defended the Fed's push to raise rates as healthy for the economy and signalled more hikes were coming.

"Powell's speech was interpreted as dovish, although I think there were some hawkish elements to it," said Jan von Gerich, chief analyst at Nordea in Helsinki.

Analysts said news that Finland plans to sell a new 10-year government bond via a syndicate of banks also came as a surprise to markets and added to upward pressure on bond yields.

Ten-year bond yields across the euro area were 1-2 bps higher on the day, although trade was subdued due to a public holiday in Britain.

Bond supply in the euro area picks up this week after a summer lull.

An Italian bond auction on Thursday could prove a key barometer of sentiment given concerns about the policies of the new anti-establishment coalition.

"The resumption of BTP auctions after the summer hiatus will serve as a key test this week but should be cushioned by sizable coupons," analysts at Commerzbank said in a note.