Euro zone bond yields rise for fourth day, defence spending in focus

LONDON, Feb 19 (Reuters) - Euro zone bond yields rose for a fourth consecutive session on Wednesday as investors focused on potential extra borrowing to fund higher defence spending amid U.S.-Russia talks over the war in Ukraine.

Germany's 10-year bond yield DE10YT=RR, the benchmark for the euro zone bloc, rose 2 basis points (bps) to 2.515%, around its highest level in more than two weeks. Yields rise as prices fall and vice versa.

Benchmark German yields have risen around 9 bps this week after U.S. President Donald Trump shocked allies by initiating talks with Russia over ending the Ukraine war, and figures in his administration said Europe will have to shoulder more of the security burden.

That implies higher spending on defence and so higher borrowing via bond markets, adding to upward pressure on yields.

Investors were also digesting the latest tariff threats from Trump, who said he intends to put a roughly 25% levy on cars. Elsewhere, UK inflation came in stronger than expected, rising to 3% in January from 2.5% in December.

​Italy's 10-year yield IT10YT=RR was higher by 2 bps at 3.57%, and the closely watched gap between Italian and German yields DE10IT10=RR stood at 105 bps.

"Significantly higher defence spending appears to be in store – on top of any other investment backlogs that have been identified," said Benjamin Schroeder, senior rates strategist at ING.

Germany's two-year bond yield DE2YT=RR was 1 bp higher at 2.145%. It has risen less than long-end bond yields as it is more influenced by expectations about European Central Bank interest rates than about borrowing.