German long-term yields set for biggest weekly rise since early March

By Linda Pasquini and Stefano Rebaudo

June 27 (Reuters) - German long-dated government bond yields were on track for their biggest weekly rise since early March, when the government unveiled a major fiscal spending package aimed at boosting economic growth and strengthening defence capabilities.

German lawmakers on Thursday passed a multibillion-euro package of measures to boost investment, part of the new government's plans.

German 30-year government bond yields DE30YT=RR have risen 11 basis points this week, heading for their biggest weekly gain since March 3. They were marginally higher on the day at 3.094%, after hitting their highest since May 26 at 3.10% on Thursday.

The 10-year yield DE10YT=RR was up 3.5 bp at 2.60%, with a 8.5 bps weekly rise, the most significant since early March.

The 2-year yield DE2YT=RR – more sensitive to European Central Bank policy rate expectations - was up 4 bps at 1.86%, recouping most of the fall in the previous session.

Markets are pricing in increased bond supply from Germany to fund its plans, pushing long-dated bond yields higher.

Meanwhile, 2-year yields have declined since early 2024, tracking expectations for the ECB’s monetary policy path. This backdrop has led to a steeper yield curve.

The yield gap between 30-year and 2-year bond yields DE2DE30=RR was set to record a weekly rise of 13.5 bps and is about to end June with a 3.5 bps increase.

On a monthly basis, the yield gap between 10-year and 2-year yields DE2DE10=RR paused in May and June after rising since April 2024.

The central bank is on track to meet its 2% inflation target, ECB Vice President Luis de Guindos said on Friday, as investors shrugged off stronger than expected inflation figures in France and Spain earlier in the session.

"We had inflation figures this morning, which were a bit stronger than the market was looking for, but not too significant," said Peter Schaffrik, chief European macro strategist at RBC.

He added that typically bond markets are "a bit quieter" going into the end of the month.

Italy's 10-year bond yield IT10YT=RR was 1 bp higher at 3.498%.

The last day of June on Monday will see a slew of economic data out of Germany, including closely-watched consumer prices.

U.S. Treasury yields came off session highs on Friday, but remained marginally up on the day, after U.S. data. nL1N3SU0E5

Treasury yields are supported by China-US trade hopes and news about U.S. Treasury Secretary Scott asking Congress to drop 'retaliatory' tax, said Lyn Graham-Taylor, senior rates strategist at Rabobank.

"I think those caused a little bit of a selloff in U.S. Treasuries."