Euro zone bond yields steady, set for biggest weekly rise in 6 weeks

LONDON, Feb 21 (Reuters) - Euro zone bond yields held steady on Friday but were on track for their biggest weekly rise since early January as investors price in the likely need for more borrowing to fund higher defence spending.

Germany's 10-year bond yield DE10YT=RR, the benchmark for the euro zone bloc, fell 0.7 basis points to 2.526%. Yields move inversely to prices.

Benchmark German yields have risen around 11 bps this week after U.S. President Donald Trump shocked allies by initiating talks with Russia over ending the Ukraine war. Figures in his administration have 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.

Italy's 10-year yield IT10YT=RR was lower by 1.1 bps at 3.605%, and the gap between Italian and German yields DE10IT10=RR stood at 108 bps.

Germany's two-year bond yield DE2YT=RR, which is more sensitive to European Central Bank rate expectations, was little changed at 2.146%.