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Bonds News

UPDATE 3-German Bund yields register biggest monthly rise since 2013

* Ten-year yields rise nearly 29 bps on month

* Tops any rise seen during 2015 Bund tantrum

* Investors reassess outlook as data, inflation pick up

* Rise in German yields matched by higher UK, U.S. yields (Updates prices for close)

By Dhara Ranasinghe

LONDON, Oct 31 (Reuters) - German government bond yields recorded their biggest monthly rise since 2013 on Monday, as investors reassess the outlook for monetary policy against a backdrop of brighter economic data.

Benchmark 10-year Bund yields edged back from near six-month peaks hit on Friday, as news that the Federal Bureau of Investigation is examining more emails in an inquiry into Hillary Clinton’s use of a private server lent support to safe-haven bonds before next week’s U.S. presidential election.

But the overall tone in debt markets remained fragile after a sharp sell-off last week triggered by stronger U.S. and European data that is seen easing pressure on major central banks to deliver further monetary stimulus.

Preliminary data on Monday showed consumer prices in the euro zone rose 0.5 percent year-on-year in October, in line with expectations and up from 0.4 percent in September.

“The market has started to refocus on the possibility that ultra-easy monetary policy will come to an end one day,” said Christian Lenk, a strategist at DZ Bank. “Today’s data shows that inflation is not completely banished.”

The 10-year Bund yield traded at 0.17 percent, flat on the day and off Friday’s near six-month high of 0.217 percent.

The yield ended October with a rise of 29 basis points, the biggest in any month since January 2013, overtaking the rise of June 2015, which marked the peak of a sell-off in German bonds triggered by data pointing to a pick-up in inflation.

Five-year German bond yields were at minus 0.39 percent, having risen last week above the European Central Bank’s minus 0.40 percent deposit rate which marks the cut-off for its asset purchase scheme.

The average yield of German bonds in circulation moved back into positive territory for the first time since June on Friday, hitting 0.01 percent, according to data from Germany’s central bank. It was at zero percent on Monday.

TURNING POINT?

The rise in euro zone bond yields, which has revived memories of last year’s “Bund tantrum” selloff, has been mirrored in the U.S. and Britain.

U.S. Treasury yields were set for their biggest monthly rise since at least June last year as Britain’s 10-year gilt yield recorded its biggest rise since 2009.

Stronger-than-expected economic growth data in Britain last week, which has dented expectations for another rate cut from the Bank of England, was a trigger for the bond sell-off last week.

The Federal Reserve also meets this week but is not expected to change monetary policy before the U.S. presidential election. Data on Friday showed the U.S. economy grew at its fastest pace in two years in the third quarter, supporting expectations that the Fed will raise rates in December.

“Higher core government bond yields in October reflect a combination of improving near-term growth prospects, especially in the U.S. and euro zone, as well as rising inflation expectations, rather than a short-lived ‘risk-on’ shift in market sentiment,” said David Riley, head of credit strategy at BlueBay Asset Management.

Spain’s bond market outperformed against its peers after lawmakers at the weekend agreed to grant conservative leader Mariano Rajoy a second term as prime minister, ending 10 months of political deadlock.

The Spanish 10-year bond yield fell 2 basis points to 1.22 percent, while Italian yields were 2 bps higher on the day. (Reporting by Dhara Ranasinghe; editing by Larry King)

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