April 13, 2018 / 7:35 AM / in 2 months

Euro zone bond yields creep up, Moody's to review Spain

* Syria worries fade for now but geopolitics in focus

* Moody’s to review Spain

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

By Dhara Ranasinghe

LONDON, April 13 (Reuters) - Borrowing costs in the euro area crept up on Friday as geopolitical worries eased, leaving Germany’s benchmark 10-year government bond yield on track for its biggest weekly rise in over two months.

U.S. President Donald Trump on Thursday cast doubt over the timing of a threatened strike on Syria in response to a poison gas attack, lifting risk appetite in world markets and in turn denting demand for safe-haven U.S. and euro zone debt.

A surprise offer by Trump to rejoin the Trans-Pacific Partnership also eased concerns about global trade tensions.

Still, some caution heading into the weekend was likely to limit any rise in government bond yields, analysts said.

And in early Friday trade, 10-year bond yields in the single-currency bloc were just 0.5 to 1 basis points higher on the day.

“In the past 24 hours, geopolitical risks have eased but uncertainty over the weekend is looming and today’s economic calendar is thin, so it would be safer to err on side of caution,” said KBC rates strategist Mathias van der Jeugt.

While worries over Syria have pushed bond yields down this week, there was some brief upward pressure after European Central Bank policy maker Ewald Nowotny said the central bank could lift its deposit rate to minus 0.2 percent from minus 0.4 percent to start the process of rate hikes.

In Germany - the euro zone’s benchmark issuer - 10-year bond yields were trading at 0.51 percent, off 1-week lows hit on Wednesday. They were set to end the week up around 2 basis points, the biggest weekly rise since early February.

There was some focus on Spain ahead of a Moody’s ratings review later in the day.

Spain, one of the strongest-performing euro zone bond markets so far this year, has seen its ratings lifted to single A territory by Fitch and S&P Global in recent months.

Moody’s rates Spain at Baa2, two notches below the Fitch and S&P ratings for Spain, making an upgrade on Friday a possibility, analysts said.

“There is the feeling in the market that the factors resulting in the Fitch and S&P upgrades are likely to draw a similar response from Moody’s,” analysts at Mizuho said in a note. (Reporting by Dhara Ranasinghe Editing by Hugh Lawson)

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