German bond yields edge up after EU agrees to borrow for Ukraine loan

By Amanda Cooper and Tom Westbrook

LONDON/SYDNEY, Dec 19 (Reuters) - German government bond yields edged up on Friday, after European Union leaders agreed to borrow an extra 90 billion euros ($105.46 billion) over two years to fund Ukraine's defence, rather than use frozen Russian assets to do so.

"As a matter of urgency, we will provide a loan backed by the European Union budget," EU summit chairman Antonio Costa told a news conference early on Friday morning after hours of talks among the leaders in Brussels.

German 10-year yields DE10YT=RR, which serve as a benchmark for the wider euro zone, were up 1.5 basis points in early trading on Friday at 2.864%.

"The big risk of using Russian assets to fund Ukraine's war effort is that it would cheapen European government paper and lead to higher rates on sovereign bonds. The flipside of that is that I would imagine this adds to the fiscal burden in Europe marginally," Kyle Rodda, senior market analyst at Capital.com, said.

"But I think that's a relatively small cost compared to what would be incurred if governments around the world in certain countries - China is the big one - decide that it's not worth buying European debt, because it could expose them to similar risk," he added.

Yields on bonds of more indebted members such as Italy rose more sharply. Italian 10-year debt rose 2.4 bps for a yield of 3.525%, while 10-year French yields rose 1.8 bps to 3.572%.

($1 = 0.8534 euros)