February 2, 2018 / 9:42 AM / in 10 months

Euro zone bond sell-off gets fresh legs as U.S. 10-year hits 2.80 pct

* German 10-yr yields hit highest since Sep 2015

* U.S. yields spike as rate hikes expected

* Payroll data could confirm trend

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

By Abhinav Ramnarayan

LONDON, Feb 2 (Reuters) - Euro zone bond yields flirted with multi-year highs on Friday before the United States releases employment data that’s expected to bolster expectations U.S. interest rates will rise.

Investors have been shedding euro zone bonds this year as a booming European economy heightens expectations the European Central Bank will tighten monetary policy. News from the U.S. is giving the sell-off fresh impetus.

“Bunds remain vulnerable as U.S. headwinds look set to persist ahead of today’s (employment) data,” Commerzbank analysts said in a note.

A Reuters poll forecast the United States added 180,000 jobs in January, an increase from 148,000 the month before.

The yield on 10-year Treasuries climbed to their highest since April 2015 overnight at 2.80 percent in European trade on Friday.

Euro zone government bond yields also rose, adding 3 to 4 bps across the board. The yield on Germany’s 10-year government bond reached its highest since September 2015 at 0.745 percent.

The gap between the U.S. and German benchmark yields was at elevated levels at 205 basis points.

“We do not see any support for U.S. Treasuries here other than domestically, if U.S. equities weaken,” said Peter Chatwell, Mizuho’s head of rates strategy.

“On the other hand, higher yields will increase euro buying and will also make European government bonds more attractive for foreign investors, causing them to continue their outperformance of USTs.”

The gap between low-rated Southern European debt and the German benchmark bonds remained tight.

The Spain-Germany 10-year government bond yield spread, for example, was steady at 67 basis points, which is the lowest the gap has been since March 2010. (Reporting by Abhinav Ramnarayan, editing by Larry King)

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