Euro zone bond yields nudge up, Bund yields touch one-month highs

By Dhara Ranasinghe and Alun John

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

In earlier trade, both 10 and 30-year German bond yields rose 3-4 bps to their highest since October 10, to around 2.68% and 3.28% respectively. By 1620 GMT, the 10-year yield was up 1 bp and the 30-year yield was up 2 bps.

Bond yields, which move up when their price falls, have ticked higher in recent days, as investors become more confident that the European Central Bank would keep rates on hold in coming months when policymakers met last week

"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.

Meanwhile, the U.S. government shutdown has left investors in the dark without fresh data.

Traders price a roughly 70% chance of a quarter point move, with focus on the end of the shutdown, with odds rising on Thursday when a batch of private labour indicators pointed to a weakening economy.

In the absence of the widely watched U.S. jobs report that was not released as scheduled on Friday, investors made do with the University of Michigan's preliminary November consumer sentiment data. That showed sentiment at its lowest since June 2022, helping lower bond yields.

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 in earlier trade.

Broadly speaking, 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, additional reporting by Yoruk Bahceli ; Editing by Sharon Singleton and Ros Russell)