Bund yields near 4-week high tracking US Treasuries, BoE in focus

By Stefano Rebaudo

Nov 6 (Reuters) - Euro zone benchmark Bund yields hovered near a four-week high on Thursday, tracking Wednesday's moves in U.S. Treasuries, as investors awaited the Bank of England's policy decision later in the day.

Germany's 10-year yields DE10YT=RR were down one basis point (bp) at 2.66% after hitting 2.676% earlier in the session, their highest level since October 10.

Concerns about the German economy persist after data showed industrial production rose less than expected in September, while the Bundesbank warned of rising risks to the country's financial stability.

"We expect that real GDP growth will accelerate from the fourth quarter onwards, moving from near stagnation towards rates of 0.2% and 0.3% quarter-on-quarter," said Salomon Fiedler, an economist at Berenberg.

"The fiscal stimulus, which is now finally starting to ramp up, and some modest pro-growth policies should help with that."

Benchmark 10-year U.S. Treasury yields US10YT=RR fell 1.5 bps after rising 6.5 bps the day before as data showed continued U.S. economic resilience and a Treasury refunding announcement indicated potential future increases in long-dated debt issues.

The European Central Bank must keep its options open for interest rate moves at upcoming meetings, ECB policymaker Francois Villeroy de Galhau said during a conference on Wednesday. Another ECB policymaker, Joachim Nagel, said the ECB should be vigilant on inflation, but not complacent.

Luis de Guindos, the bank's vice president, said on Thursday any inflation dip below 2% would be temporary.

Money markets priced in a roughly 45% chance of a 25-basis-point ECB rate cut by September EURESTECBM7X8=ICAP from over 80% in mid-October at the height of U.S.-China trade tensions. They also projected the ECB deposit rate to be around its current 2% level in December 2026.

China's commerce ministry on Thursday flagged fresh prospects for a trade or investment agreement with the European Union, raising the idea of negotiations for a deal similar to a landmark investment pact whose ratification was frozen in 2021.

Germany’s 2-year yields DE2YT=RR, more sensitive to expectations for ECB policy rate outlook, fell one bp to 2.0%.

The BoE is set to announce a potentially knife-edge interest rate decision on Thursday with most investors expecting no change before this month's government budget, but some analysts say inflation heat is cooling enough for a cut.

The yield gap between safe-haven Bunds and 10-year French government bonds DE10FR10=RR — a market gauge of the risk premium investors demand to hold French debt — was at 78.50. Concerns over France’s fiscal trajectory drove it to around 88 bps in early October.