* Euro zone bonds higher on US sell-off, supply
* 10-year US treasury yield hits high of 2.6 pct
* France and Spain to hold auctions
* Austria seen launching 10-year bond syndication
By Fanny Potkin
LONDON, Jan 18 (Reuters) - Borrowing costs in the euro area headed back towards recent multi-year highs on Thursday, as a sell-off in U.S treasuries and new supply from France, Spain, and Austria put markets on the back foot once again.
The 10-year U.S. Treasury yield hit its highest since March 2017 at 2.60 percent in early European trade, pushing euro zone counterparts higher.
The U.S. yield curve flattened to a decade-low spread between 5-year and 30-year yields on Wednesday and two-year Treasury yields hit a ten-year high on Thursday on expectations the Federal Reserve will continue to tighten monetary policy this year.
Most long-dated bond yields in the euro area were up 1-3 basis points on the day, facing additional upward pressure from new supply.
France plans to sell up to 7.5 billion euros of short-dated bonds, and Spain up to 4.5 billion euros of short and long-term debt later on Thursday.
Analysts noted that Austria’s planned 10-year government bond syndication is expected to take place on Thursday and should draw significant demand.
“Core euro zone bond yields are under pressure since yesterday because of the new Austrian 10-year bond,” said DZ Bank rates strategist Sebastian Fellechner.
Germany’s 10-year bond yield, the benchmark for the region, was 3 bps higher on the day at 0.52 percent, near 5-1/2 months at 0.54 percent hit on Friday.
European Central Bank rate-setter Benoît Coeuré and Bundesbank President Jens Weidmann are expected to speak in Frankfurt later on Thursday.
“Coeuré... has not been heard year-to-date and could use the chance to stifle any remaining hawkish expectations ahead of next week’s ECB meeting,” analysts at ING said in a note.
Bond markets have taken comfort over the past week in signs that ECB rate-setters are in no hurry to commence an immediate change in the bank’s policy stance.
On Wednesday, the ECB’s Vitor Constancio said in an interview he did not rule out that monetary policy would remain “very accommodating for a long time”.
That followed a Reuters source-based story on Tuesday that the ECB is unlikely to ditch a pledge to keep buying bonds at next week’s meeting.
Reporting by Fanny Potkin; Graphic by Dhara Ranasinghe; Editing by Raissa Kasolowsky