Euro zone government bonds on backfoot, Bund yields near one-month highs

(Updates throughout)

By Dhara Ranasinghe and Alun John

LONDON, Nov 7 (Reuters) - Borrowing costs in the euro area nudged up on Friday and benchmark 10-year German Bund yields hovered at one-month highs with traders confident that the European Central Bank is likely done with its easing cycle.

Germany's 10-year yield rose to around 2.68%, its highest since October 10.

Bond yields, which move up when their price falls, have ticked higher in recent days, as investors become more confident after the ECB Bank meeting last week that it will keep rates on hold in coming months.

"The risk is still towards a cut but that is a risk more than anything else," said Frederik Ducrozet, head of macroeconomic research at Pictet Wealth Management.

Money markets price in a roughly 40% chance of an ECB rate cut by July next year.

Ducrozet said a speech by ECB board member Isabel Schnabel on Thursday may have added to some upward pressure on long-dated bond yields.

The ECB is still far away from resuming debt purchases to inject liquidity into the banking system as it first needs to work off more of the bonds it bought over a decade of easy policy, said Schnabel.

She is in charge of the ECB's market operations.

Signs of resilience in the U.S. economy, even with a lack of economic data due to the government shutdown, has also added to upward pressure on bond yields this week as investors question whether the Federal Reserve will deliver a December rate cut.

Traders price a roughly 60% chance of a quarter point move, with focus on the end of the shutdown.

Overall trade across big bond markets was subdued, with news that China's exports are suffering their worst downturn since February having little impact in Europe.

Most 10-year bond yields across the bloc were just a bit higher on the day. French yields touched 3.47%, and Italian ones hit 3.45% -- their highest since mid-October.

Broadly speaking, however, the German 10-year yield is where it has averaged all year. ING analysts said in a note it had "happily mean-reverted around" 2.6%.

They think, however, with the ECB now firmly on hold, and more German debt issuance upcoming, it should head towards "the 2.75% to 3% area". (Reporting by Alun John and Dhara Ranasinghe ; Editing by Kim Coghill and Sharon Singleton)