* Bond yields up 2-6 bps, inflation expectations at 11-month
* Oil-price surge after OPEC deal stokes inflation bets
* Austria seeks approval for debt issuance of up 100 years
* France, Spain hold auctions; Italy counts down to
* Graphic: tmsnrt.rs/2fPTds0
(Updates prices, adds graphic)
By Dhara Ranasinghe
LONDON, Dec 1 German government bond yields rose
to their highest level in two weeks on Thursday, as a surge in
oil prices following the first output cut by major oil producers
since 2008 and fresh signs of a rebound in the global economy
boosted inflation expectations.
Austria was in focus after news that it has started the
legislative process to allow debt issuance of up to 100 years,
while a reluctance by investors to push Italian government bond
prices much lower ahead of a referendum on Sunday limited
selling in the southern European market.
For now, a deal by the Organization of the Petroleum
Exporting Countries and Russia to reduce output to drain a
global supply glut grabbed the market's attention, lifting euro
zone bond yields 2-6 basis points higher.
The news, which sent oil prices to six-week highs,
comes as markets reassess the outlook for inflation and growth
following the election of Donald Trump as next U.S. president.
Signs of stronger growth globally renewed "reflation trades"
that had slowed in recent sessions as investors awaited further
details of Trump's economic agenda.
Euro zone manufacturers enjoyed their best month in November
since the start of 2014, a survey showed. Also on Thursday, a
survey revealed China's factories notched up their strongest
activity in two years, while data on Wednesday showed that U.S.
private employers stepped up hiring in November and consumer
spending increased last month.
"We've had spike in oil prices, plus better data, so we're
seeing the reflation trade come back," said Martin van Vliet,
senior rates strategist at ING.
Germany 10-year Bund yields hit a two-week high of 0.35
percent, while 30-year bond yields rose 10 bps to
A market measure of euro zone inflation expectations, the
five-year, five-year breakeven forward, rose to an 11-month high
above 1.64 percent.
ANOTHER 100-YEAR BOND?
Austria has started the legislative process to permit debt
issuance of up to 100 years in maturity and could sell a bond
next year, a treasury spokesperson told Thomson Reuters' markets
news service IFR on Thursday.
The country has submitted a draft law to parliament, which
will be debated until mid-January, in news that highlights a
growing interest in ultra-long bond issuance.
Italy, Spain, France and Belgium have all sold 50-year bonds
this year via syndications, where banks place the bonds with a
wide group of investors, while Belgium and Ireland issued
100-year paper in smaller private placements.
Austria itself sold 2 billion euros of 70-year bonds earlier
On Wednesday, Steven Mnuchin, Donald Trump's nominee to run
the U.S. Treasury Department, said he will explore issuing debt
maturing in more than 30 years.
Both France and Spain sold bonds on Thursday.
The sell-off in euro zone bonds dragged 10-year bond yields
in Italy back above 2 percent.
But analysts said that with a 'No' vote in Sunday's
referendum on constitutional change now largely priced into
markets, there was a reluctance to push Italian yields much
higher for now. Prime Minister Matteo Renzi has staked his
future on a 'Yes' vote, but opinion polls have been pointing in
the other direction. (Graphic: tmsnrt.rs/2fIcq0j)
A report this week that the European Central Bank is ready
to step up purchases of Italian government bonds temporarily if
the referendum result sharply drives up borrowing costs has also
helped stabilise the bond market.
HSBC said that fears of political upheaval were overstated.
It described Italian yields above 2 percent as "attractive" and
said a 10-year Spanish/Italian yield gap of around 50 bps
reflected that a 'No' vote was priced in by markets.
"We ... stay overweight 10-year Italy versus Spain, looking
for the spread to tighten post referendum as some of the
uncertainty premium is priced out," HSBC said in a note.
(Reporting by Dhara Ranasinghe; Editing by Andrew Heavens and