German 30-year bond yields hit two-month high; investors fret over long-term US debt

By Linda Pasquini

May 22 (Reuters) - German long-term bond yields hit a two-month high on Thursday, as investors' concerns around a worsening fiscal outlook in the United States in particular were reinforced by tepid demand for a U.S. Treasury auction the day before.

Investors were also focusing on manufacturing and services sector surveys for May from the euro zone, Britain and the United States due later in the day.

Euro zone bond yields edged up modestly across the board, but longer-term bonds were clear underperformers, with German 30-year yields DE30YT=RR up nearly 2 basis points at 3.168%, after initially hitting their highest since mid-March at 3.179%.

In March, German yields surged after a historic change to the country's borrowing rules and the announcement of a massive spending programme.

German 10-year yields DE10YT=RR, the euro zone benchmark, rose 1 basis point to 2.654%, while the more rate-sensitive two-year yield was marginally lower at 1.86%. DE2YT=RR

Worries around the U.S. debt load, fanned by President Donald Trump's tax bill that is expected to be voted on in the House of Representatives within hours, have lifted U.S. borrowing costs this week.

Additional pressure came also from soft demand for a $16 billion sale of 20-year U.S. Treasury bonds on Wednesday, which followed Moody's removing the country's top-notch credit rating last week.

Yields on 30-year Treasury bonds US30YT=RR were stable above 5%, after hitting a 1-1/2 year high overnight.

Looking ahead, business activity for the euro zone and Germany is expected to have been broadly steady from the previous month.

"Those will be interesting, as they're one of the first indications we have for how the global economy has performed this month, particularly given not all of the Liberation Day impact would have been immediately clear in April," analysts at Deutsche Bank wrote in a note to clients.

Italy's 10-year yield, seen as the benchmark for the euro zone periphery, was 1.5 bps higher at 3.66%, while the 30-year yield was up 2 bps at 4.52%. IT10YT=RR