Euro zone yields rise as risk-off sentiment fades on positive data points

By Lucy Raitano

LONDON, Nov 5 (Reuters) - Euro zone government bond yields ticked higher on Wednesday, in a reversal from earlier trading as broader risk sentiment improved following a recent tech-led stocks sell-off, with several positive economic data points hitting screens.

German 10-year Bund yields DE10YT=RR rose 2.1 basis points to 2.7%. Two-year yields DE2YT=RR, which are the most sensitive to shifts in inflation expectations and the outlook for monetary policy, were up 1 basis point at 1.998%.

"There has been a complete reversal from this morning, with three key drivers," said Evelyne Gomez-Liechti, multi-asset strategist at Mizuho International.

She pointed to data showing U.S. private payrolls rebounded sharply in October.

"ADP employment is one of the only data points we have during the shut down...it's the only thing investors can hold onto, and its a bit stronger than expected," said Gomez-Liechti, who said this translated into higher bond yields.

"It suggests that if we did have NFP data, it would rebound a bit."

She said the second catalyst was news on Wednesday that the U.S. Treasury Department expects to keep its nominal coupon and floating rate note auction sizes steady for at least the next several quarters, but is beginning to consider future increases.

"The key thing here was the fact that they opened the door to future increases in nominal coupon sizes, no one was expecting that," she said.

The third factor was the U.S. services sector activity which picked up in October amid a solid increase in new orders.

Elsewhere, a survey on Wednesday showed the euro zone economy expanded in October at its fastest rate since May 2023, breaking out of the subdued growth pattern seen earlier this year as service-sector activity accelerated and demand conditions improved.

The euro zone wage growth tracker released on Wednesday showed wage growth slowing into 2026, then rising back to still modest levels, supporting the European Central Bank's projection for moderate consumer price pressures.

That came after the ECB left rates unchanged last week at a regular review, reiterating that monetary policy was "in a good place".

Speaking at a conference on Wednesday, ECB policymaker Francois Villeroy de Galhau said the central bank must keep its options open for interest rate moves at upcoming meetings.

The last report in September indicated a continued slowing in wage growth, which was forecast to come in at 1.7% in the first half of next year, below the ECB's 2% inflation target.

($1 = 0.8575 euros)