December 18, 2019 / 11:22 AM / a month ago

UPDATE 2-Euro zone bond yields rise after upbeat economic data

* Yields rise after Tuesday’s Brexit-induced drop

* German Ifo data comes in better than expected

* Germany to issue green bond in 2020 - sources

* Euro zone periphery bond yields: tmsnrt.rs/2ii2Bqr (Updates prices, adds inflation expectations and German green bond)

By Tommy Wilkes and Yoruk Bahceli

LONDON, Dec 18 (Reuters) - Euro zone bond yields rose on Wednesday after more upbeat European economic data helped offset some of the anxiety about a new Brexit cliff-edge that boosted demand for safe-haven government debt a day earlier.

Investors have been dumping euro zone government debt for riskier assets in recent weeks on signs the economy is rebounding and in anticipation of an agreement on the first phase of a trade deal between Washington and Beijing.

There was more optimism on Wednesday with the German Ifo institute’s business climate index rising to a better-than-expected 96.3 in December, suggesting the euro zone’s largest economy grew 0.2% in the fourth quarter.

Euro zone inflation accelerated in November to 1%, data showed, confirming an earlier estimate, and the market gauge of long-term euro zone inflation expectations exceeded 1.30% for the first time since September.

Most 10-year bond yields were up 4 basis points in late trade, with Germany’s 10-year Bund yield at -0.26%, although analysts stressed that moves this week were difficult to explain due to thin volumes.

That erased the fall in yields on Tuesday after British Prime Minister Boris Johnson ruled out any extension to the 11-month transition period it has to strike a trade deal with Brussels after leaving the EU on Jan. 31.

Greece was the exception, with its 10-year yield down 8 basis points as it considers repaying more expensive IMF loans ahead of next year to convince official lenders to lower its post-bailout fiscal targets.

Jan von Gerich, an analyst at Nordea, said that despite concerns about the Brexit negotiations he expected sentiment in bond markets to remain upbeat going into 2020.

“The general tone is still positive in that people think the worst is behind us for the economy,” he said, while adding that he didn’t “buy the optimism” about the health of the euro zone economy and the phase one deal between Washington and Beijing.

Investors were, nevertheless, ready to push yields higher, von Gerich said, believing economic and political uncertainty had eased. The 10-year German bond yield could rise another 15 to 20 basis points in the coming weeks, with a move back into positive territory not out of the question, he said.

Elsewhere, Germany plans to tap into the booming sustainable finance market by issuing its first “green bond” in the second half of next year, sources told Reuters.

The bond will be part of the government’s efforts to roll over maturing debt and will be a high-single digit to low double-digit billion euros in size. Further details were expected on Thursday when the German debt agency is scheduled to release next year’s auction calendar.

There was little fresh news on the phase one trade deal that China and the United States are expected to strike.

Optimism the world’s two largest economies will resolve their most serious trade disagreements has fuelled a rally in stocks and a sell-off in euro zone debt since October, reversing much of the collapse in yields in August and September. (Reporting by Tommy Reggiori Wilkes and Yoruk Bahceli; Editing by Catherine Evans, Susan Fenton and David Clarke)

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