Euro zone bonds steady, German 10-year yield back below 0%

·2 min read

Jan 20 (Reuters) - Euro zone bond yields steadied on Thursday, a day after Germany's 10-year yield rose above 0% for the first time in nearly three years.

The rise into positive territory marked a potential turning point for euro area debt, which for years has been characterised by negative yields thanks to copious support from the European Central Bank to fight deflationary forces.

After rising as high as 0.025% on Wednesday, Germany's 10-year yield was at -0.01%, flat on the day by 0816 GMT after touching 0.008% earlier.

"With the 0% level in 10-year Bunds finally taken out and markets already discounting steep Fed/ECB hiking paths, the next leg of the sell-off seems tougher," said Michael Leister, head of interest rates strategy at Commerzbank.

In a quiet session with no major data releases expected in the euro zone, most other 10-year benchmark government bond yields in the bloc were down a basis point to a basis point higher.

An exception was Greece, where the 10-year yield was last up 5 basis points to 1.73%, a new high since May 2020, following the country's 10-year government bond sale on Wednesday.

The deal saw far less demand than last year as the end of the ECB's pandemic emergency bond purchases looms in March.

Focus will be on the European Central Bank's December meeting minutes, due to be released at 1230 GMT.

They come as ECB officials have recently flagged the risk that inflation may come in higher than the bank expects for this year and one policymaker said that the bank could adapt its policy faster if that happens.

However, ECB President Christine Lagarde, who has also said the bank is ready to take any measures necessary to bring inflation down, on Thursday maintained that inflation will decrease gradually over the course of the year as energy prices and supply bottlenecks are expected to ease.

In debt auctions, France will raise up to 10.5 billion euros ($11.92 billion) from bonds due 2025, 2027 and 2028 and up to another 1.75 billion euros from inflation-linked bonds, while Spain will raise up to 5 billion euros from bonds due 2027, 2030 and 2040.

($1 = 0.8805 euros) (Reporting by Yoruk Bahceli; Editing by Susan Fenton)