Euro zone bond yields hit multi-month highs, spreads widen

Adds data and background on yield spreads

By Harry Robertson and Stefano Rebaudo

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%.

Meanwhile, the risk premium for Italian government bonds widened sharply while the one on the French debt approached its highest levels in over 12 years as investors' focus gradually shifted to fiscal risks.

The yield gap between French and German 10-year yields DE10FR10=RR - measure of the risk premium investors demand to hold French debt – reached 88.1 bps, its highest since Nov. 27.

It rose to 90 bps at the end of November after a deeply divided lower house rejected the budget plan for 2025. Political instability raised fears that France could struggle to curb a burgeoning public deficit.

The spread between Italian and German yields DE10IT10=RR rose to 125.2 bps and was last up 5 bps at 122.50 bps. Italian public debt is among the highest in the euro area, even if its outlook has not raised concerns among investors so far.

The Greek yield spread widened 8 bps DE10GR10=RR; while Spain's DE10ES10=RR and Portugal's DE10PT10=RR rose 2-3 bps.

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 bps before the employment data.

"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.

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 an auction on Monday, while Germany moved some short-term debt.

Germany's two-year yield DE2YT=RR, more sensitive to European Central Bank rate expectations, rose to 2.322%, its highest since November and was up one bp at 2.29%.

Investors wait for U.S. inflation data on Wednesday, while keeping an eye on British markets, which have been particularly hard hit in the global bond sell-off.

($1 = 0.9804 euros)

(Reporting by Harry Robertson and Stefano Rebaudo,
Editing by Bernadette Baum, Ed Osmond and Tomasz Janowski)

((stefano.rebaudo@tr.com;))