July 5, 2018 / 7:32 AM / 17 days ago

Euro zone bond yields higher as market gets rate-hike reminder

* German 2-year bond yield at 2-week highs

* Euro zone bond yields broadly higher

* Some ECB members unhappy with market rate-hike pricing - report

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

By Dhara Ranasinghe

LONDON, July 5 (Reuters) - Government bond yields in the euro area were broadly higher on Thursday, following a report that some European Central Bank policymakers are uneasy that markets are only pricing in a rate rise for late next year.

Two-year bond yields in Germany, generally the most sensitive to market rate-expectations, hit a two-week high. Bond sales from France and Spain later in the day added to upward pressure on yields across broader markets.

According to a source-based story from Bloomberg news late on Wednesday, some ECB officials see the pricing in of a end-2019 rate rise by markets as too far into the future.

Analysts said the story highlighted a degree of complacency in markets since the ECB last month announced that its massive stimulus would end in December but that interest rates would stay low through the summer of 2019.

Reuters reported last week that the ECB is considering buying more long-dated bonds from next year to keep euro zone borrowing costs in check - pushing down long-dated bond yields further.

“Maybe the ECB wanted to counter balance some of the excitement we’ve seen in the last week and keep the possibility of a rate hike firmly on the table,” said Martin van Vliet, senior rates strategist at ING.

Investors fully price in a 10 basis point rise in the ECB’s deposit rate in October next year, according to forward Eonia money market rates. Before the ECB’s June 14 meeting, a rate hike had been anticipated for July 2019.

Germany’s two-year bond yield was last up 3 basis points at minus 0.64 percent, its highest level in two weeks.

Long-dated bond yields across the single-currency bloc were 1-3 bps higher on the day .

France and Spain are scheduled to hold bond auctions later in the day, adding to upward pressure on yields as investors sold existing bonds to make way for the new supply.

Still, 30-year bond yields were a touch lower in a sign that the far-end of the yield curve continues to benefit from an expectation that the ECB will plough funds from maturing bonds it holds back into longer-dated debt next year.

Focus turned to the release of the minutes from the Federal Reserve’s last meeting due for release later in the day.

Unease in world stock markets ahead of a U.S. deadline to impose tariffs on Chinese imports meanwhile was expected to limit the selloff in safe-haven government debt.

Reporting by Dhara Ranasinghe; Editing by Toby Chopra

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