High-grade euro zone yields edge higher as Turkey crisis cools
* Turkey relief improves risk sentiment
* Demand for safe-haven German Bunds recedes
* Euro zone yields up 1-2 bps across the board
* Euro zone periphery govt bond yields http://tmsnrt.rs/2ii2Bqr (Updates pricing, adds Turkey investor call and quote)
By Abhinav Ramnarayan
LONDON, Aug 16 (Reuters) - Euro zone bond yields rose from one-month lows on Thursday as a currency crisis in Turkey eased, reducing demand for safe-haven assets such as government debt.
Yields on German bonds, considered one of the safest and most liquid assets in the world, had fallen to their lowest level in a month on Wednesday as Turkey's currency crisis led to a global market selloff and boosted demand for safe assets.
Turkish bonds found some support on Thursday after Finance Minister Berat Albayrak assured international investors on a conference call that the country would emerge stronger from its currency crisis and that its banks were healthy.
Earlier supportive measures from the Turkish central bank and key ally Qatar have helped the Turkish lira strengthen, although it was little changed after Albayrak's call.
Risk sentiment was also supported by China's plans to send a delegation led by Vice Commerce Minister Wang Shouwen to the United States.
China said on Thursday it would hold a fresh round of trade talks with the U.S. later this month, offering hope for progress in resolving a conflict that has put world markets on edge.
Germany's 10-year bond yield, the benchmark for the euro zone, was up 2 bps at 0.32 percent. Other high-grade euro zone bond yields also rose 1 to 2 bps on the day.
Italian bonds were hit particularly hard by the Turkish currency crisis, in part because of concerns over Italian banks' exposure to the country, so a recovery by the Turkish lira supported Italian spreads in early trade.
Volatile trading across the curve over the course of the day was exacerbated by much of Europe being on holiday. Italy's 10-year bond yield jumped five basis points in early trade to 3.14 percent, but settled around 3.10 percent.
"Because volumes are thin, it being August, there's less information than usual in the prices," said Laurence Mutkin, global head of G10 rates at BNP Paribas.
"It is still hard for the market to price BTPs," he added.
Italian 10-year yields hit a 2 1/2-month high of 3.20 percent on Wednesday, with the spread over German bonds also the widest since late May at 289 bps.
The Italy/Germany 10-year bond yield spread closed at around 280 bps on Thursday .
Italy's two-year and five-year bond yields also dropped by around 10 bps.
The Italy/Spain 10-year spread on Wednesday stretched to 183 bps, the widest since January 2012, the depths of the euro zone debt crisis, before recovering to 166 bps as trading wound down on Thursday..
"I would say the market is in wait-and-see mode at the moment, waiting for the outcome of the budget talks," said Martin Van Vliet, senior rates strategist at ING, referring to the Italian government's attempts to push back on EU rules on public spending. (Reporting by Abhinav Ramnarayan; additional reporting by Virginia Furness; editing by Susan Fenton and Kirsten Donovan)
