Inflation data keeps German bond yields near 3-week highs

LONDON: Germany's 10-year government bond yield rose back towards three-week highs on Thursday, after data from the euro zone's biggest economies suggested a pick up in inflation.

Having fallen to more than two-year lows of below 0.10 percent earlier this month, German bond yields rose sharply on Wednesday as receding fears of a no-deal Brexit sparked a sell-off in British Gilts that spilled over into other safe-haven bond markets.

Having crept down in early Thursday trade after data showed inflation in France picked up less than expected in February, euro zone bond yields soon nudged back up following the release of inflation data from German states as well as Spain and Italy.

Spanish consumer price inflation rose by 1.1 percent year-on-year in February, lifting for the first time since September as fuel costs increased, while annual inflation in Italy accelerated to 1.2 percent from 0.9 percent in January.

Inflation data from the Germany states, released ahead of the nationwide number later this session, also suggested a pick-up in price pressures this month.

"It's the inflation numbers this morning and overall the news on Brexit that has allowed some profit-taking on Bunds after what has been a pretty persistent rally," said John Davies, G10 rates strategist at Standard Chartered Bank.

Germany's 10-year bond yield rose to 0.168 percent  - matching a three-week high hit on Wednesday as the selloff in British Gilts gathered pace. It had been down as much as 1.5 bps at 0.14 percent following the French inflation numbers.

The rise in benchmark Bund yields steepened the German curve, with the gap between two and 10-year bond yields at its widest in around two weeks at 71 basis points.

"It was quite striking yesterday that the selloff in Gilts dragged on the German and U.S. bond markets," said KBC rates strategist Mathias van der Jeugt.

A flash estimate of euro zone inflation data is due out on Friday.

Global trade tensions and an early end to a U.S.-North Korean summit in Hanoi weighed on global stock markets, limiting the rise in safe-haven bond yields.

There was also focus on U.S. economic growth numbers later in the day.