Long-dated euro zone bond yields rise on lingering fiscal worries

By Jaspreet Kalra

Sept 1 (Reuters) - Long-dated euro zone bond yields rose on Monday as investors continued to fret over government debt levels around the world and also digested strong business activity data for European economies.

Germany's 30-year yield DE30YT=RR rose to a 14-year peak of 3.381% before cooling to 3.36%, up 1 basis point.

Other long-dated euro zone yields, including in France and the Netherlands, touched their highest level since 2011, extending moves from August when super long-dated yields posted their biggest monthly jump in five months.

And while investors are far from panicking about the upward trend, it has got them a little jittery.

"When I think about worries to our relatively optimistic view, a big wobble in the bond market is probably the number one thing I'm worried about," said Talib Sheikh, multi-asset portfolio manager at Fidelity International.

Investors were processing the euro zone manufacturing Purchasing Managers' Index (PMI), which rose to an over-three-year high of 50.7 in August from 49.8 in July.

Germany's 10-year yield DE10YT=RR, the benchmark for euro zone bonds, was up 3 bps at 2.74%, while France's 10-year yield FR10YT=RR rose by a similar amount to 3.54% after hitting its highest level since March earlier in the day.

In addition to global fiscal worries, political developments in France - with Prime Minister Francois Bayrou's minority government at risk of collapse in a September 8 confidence vote - have also been a drag for the country's government bonds.

The developments have also contributed to a widening of the spread between German and French 10-year bond yields, a measure of the premium investors seek for holding French debt over German DE10FR10=RR, which was last at 79 basis points after last week reaching its widest since April.

"We have maintained our year-end target for the 10y OAT-Bund spread at 70bp, but see risks tilted towards wider spreads, especially if fresh parliamentary elections become a more central case to the market," analysts at Goldman Sachs said in a note.

European Central Bank President Christine Lagarde said on Monday she was looking very attentively at the French bond spreads but that France was not currently in a situation that would require IMF intervention.

Elsewhere, the focus is on key U.S. labour market and business activity data peppered over the course of this week. The data is expected to influence expectations of rate cuts by the U.S. Federal Reserve.

Money markets are currently pricing in a near 90% chance that the Fed will lower benchmark rates by 25 basis points in September, per CME's FedWatch tool.