Bund yields close to 9-month high, focus shifts to ECB meeting, US data

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Lagarde said the ECB could lift growth projections

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Markets price a 55% chance of a rate hike in March 2027

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Analysts cautious as inflation is expected to undershoot

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US jobs data due later in the session

By Stefano Rebaudo

Dec 11 (Reuters) - The euro area's benchmark Bund yield hovered near a nine-month high on Thursday as investors shifted focus to next week's European Central Bank meeting after the Federal Reserve cut rates as expected.

Early this week a batch of strong economic data and comments from ECB policymaker Isabel Schnabel, who said a rate hike is more likely than a cut, pushed Bund yields to their highest since March, when Germany unveiled a massive increase in fiscal spending.

Meanwhile German 30-year yields hit their highest levels in more than 14 years, as long-dated debt came under pressure on worries over fiscal spending and heavier bond supply.

Germany's 10-year yields, the euro area's benchmark, were up 0.5 basis points (bps) at 2.86% on Thursday. They hit 2.894% on Wednesday, their highest since mid-March.

ECB President Christine Lagarde said on Wednesday the economy is proving resilient and the central bank could lift growth projections next week, after reiterating that monetary policy is in a good place.

"With expected sub-2% inflation forecasts for the next three years, we see any following ECB rate change as a cut, not a hike, at least through late spring next year," said Carsten Brzeski, global head of macro at ING, adding that Schnabel's comments may not reflect the ECB's majority view.

"After that, the window for rate cuts will likely close, and fiscal stimulus that meets supply-side constraints could bring back inflationary pressures," he added, arguing that is a 2027 story, rather than one for 2026.

Markets already changed their pricing of the ECB policy path, which is now roughly unchanged after the Fed.

Traders priced in around a 5% chance of an ECB rate cut next summer, from 40% in late November and almost 70% in mid-October. Derivative markets have implied roughly a 55% chance of a rate hike by March 2027 since Tuesday.

"We see the ECB holding rates steady at 2.0% in both 2026 and 2027 due to inflation undershooting in contrast to market expectations of 37-bp worth of hikes," said Rune Thyge Johansen, macro analyst at Danske Bank.

Benchmark 10-year U.S. Treasuries yields were down 2 bps in London trade after dropping 2 bps the day before as the Fed signalled a less hawkish outlook than some investors anticipated and announced larger T-bill purchases.

Investors will closely watch U.S. jobs data due later in the session.

Germany's 30-year yields, more sensitive to long-term fiscal concerns, rose one bp to 3.47%, after hitting 3.488% on Wednesday, the highest since summer 2011.

Yields on German 2-year Schatz fell 1.5 bps to 2.17%. (reporting by Stefano Rebaudo; editing by William Maclean)