Euro zone bond yields hover near 2-week highs, supply, trade hopes dominate

* Euro zone periphery govt bond yields tmsnrt.rs/2ii2Bqr

By Dhara Ranasinghe

LONDON, Jan 14 (Reuters) – Benchmark 10-year government bond yields in the euro area hovered near their highest levels in almost two weeks on Tuesday, as the imminent signing of a U.S.-China trade deal and a fresh wave of bond supply dented the appeal of fixed income.

With the world’s two biggest economies a day away from signing a Phase 1 trade agreement, signs of goodwill from both sides bolstered sentiment in world markets.

The U.S. Treasury said on Monday that China should longer be designated as a currency manipulator.

“For now it’s risk-on and consistent with that there was a broad-based sell-off in fixed income yesterday,” said Deutsche Bank strategist Jim Reid.

Germany’s benchmark 10-year Bund yield was steady around -0.19%, its highest level in almost two weeks, having risen 4 basis points on Monday.

French and Dutch 10-year bond yields traded close to highs hit on Monday.

Analysts said a second straight week of hefty new supply in the currency bloc should add to upward pressure on bond yields.

Italy is scheduled to sell three, seven and 20-year government bonds later in the day, while Spain is expected to launch the sale of a new 10-year bond via a syndicate of banks as early as this session.

On Monday, Spain mandated banks for a new bond deal in a sign that it would be launched soon.

The Dutch meanwhile are expected to tap an existing Green bond for an estimated 1.3 billion euros.

“Rising yields could also lead to more supply hitting the market imminently as treasuries front-load (issuance) to secure more favourable rates,” analysts at Mizuho said in a note. (Reporting by Dhara Ranasinghe; Editing by Simon Cameron-Moore)

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