Euro zone bond yields hit multi-month highs after US jobs data

Updates in late morning European trading

By Harry Robertson

LONDON, Jan 13 (Reuters) - Euro zone bond yields rose again on Monday to new multi-month highs as strong U.S. jobs data from Friday, a rise in oil prices, and another busy week of government debt issuance continued to put pressure on global fixed income markets.

Germany's 10-year bond yield DE10YT=RR, the benchmark for the euro zone bloc, rose to 2.612%, the highest since July. It was last up 2 basis points (bps) at 2.592%.

Figures on Friday showed the U.S. economy added 256,000 jobs in December, the most since March and well above economists' expectations of 160,000.

Traders on Monday were no longer certain the Federal Reserve will cut rates this year, pricing just 24 bps of rate cuts for 2025, down from 43 before the employment data.

Dwindling expectations for Fed rate cuts have pushed up U.S. bond yields sharply in recent weeks, taking the rest of the world's bond markets with them.

"Bond markets struggle to stabilise with the rally in oil, upbeat U.S. payrolls and the supply wave taking its toll, and a change of dynamics seems unlikely this week," said Hauke Siemssen, rates strategist at Commerzbank.

Oil prices have risen roughly 5% over the last two sessions, driven by new U.S. sanctions on Russia's energy exports, potentially adding to higher inflation expectations and therefore lower rate cut pricing.

Siemssen said Commerzbank expects governments to issue about 22 billion euros ($22 billion) of debt this week, with a possibility of more coming from syndications. Last week they sold 62 billion euros, Commerzbank said.

Italy sold three and seven-year bonds at their highest yields since July at auction on Monday, while Germany moved some short-term debt.

Italy's 10-year yield IT10YT=RR also reached its highest level since July, at 3.855%, on Monday. It was last up 6 bps at 3.837%. Yields move inversely to prices.

The gap between Italian and German yields DE10IT10=RR widened to 124 bps, the highest since late November.

Germany's two-year bond yield DE2YT=RR, which is sensitive to European Central Bank rate expectations, rose to 2.322%, its highest since November. It was last trading 2 bps higher at 2.302%.

With little on the euro zone economic calendar, investors were waiting for December U.S. inflation data on Wednesday.

They were also keeping an eye on British markets, which have been particularly hard hit in the global bond sell-off amid concerns about high inflation and a stagnating economy.

($1 = 0.9804 euros)

(Reporting by Harry Robertson,
Editing by Bernadette Baum and Ed Osmond)

((harry.robertson@thomsonreuters.com;))