* Euro zone bond yields edge higher, German 10-yr rises 2 bps
* 35 billion euros of new govt bond supply expected this week
* German industrial outlook falls
By Virginia Furness
LONDON, Jan 8 (Reuters) - European governments are expected to issue some 35 billion euros of new debt this week, and anticipation of supply as well as recovering risk sentiment are keeping upward pressure on bond yields despite more weak data from Germany.
Austria, Germany and the Netherlands will kick off issuance with auctions on Tuesday, and Ireland and Portugal are widely expected to add to recent syndications from Belgium and Slovenia.
Core euro zone bond yields, including Germany — the benchmark for the region — inched higher in early trade, tracking the late move higher in U.S. Treasuries on Monday.
Expected supply is outweighing any downward pressure from falling German industrial output which will likely add to concerns about European growth, according to Christoph Rieger, rates strategist at Commerzbank.
“What is more important than the tier two macro data is the avalanche of supply in European government bonds and SSA, as well as the U.S. refinancing which starts today,” he said.
German industrial output unexpectedly fell in November for the third consecutive month, data showed on Tuesday, in a further sign that Europe’s largest economy shifted into a lower gear in the final quarter of 2018.
But investors remain focused on the stronger than expected U.S. jobs growth data and soothing comments from Fed Chair Jerome Powell on Friday which saw core eurozone yields rise from the two year lows hit on January 3.
Powell said the Fed will be patient and sensitive to market risks, alleviating concerns about a global economic slowdown.
Germany’s 10-year government bond yield rose two basis points in early trade to reach 0.234 percent, its highest level this year while 10-year bond yields from other core European governments were also around two basis points higher. ,.
Austria plans to sell a combined 1.265 billion euros of 2028 and 2047 government bonds, the Netherlands will auction 1.25-1.75 billion euros of bonds maturing 2023, and Germany will auction 500 million euros of its 2030 bund on Tuesday.
Analysts expect supply for the first full week of 2019 to surpass that issued in the same week last year.
While low bond yields should result in lower all in funding costs for these issuers, the glut of supply is expected to mean that new issue concessions - the extra premium governments must offer to entice investors to buy new debt - could creep up.
“Rich market levels mean this week’s auctions will be a test for the market,” wrote Societe Generale in a note to clients. (Reporting by Virginia Furness, Editing by William Maclean)