June 8, 2015 / 7:12 AM / 2 years ago

Bund yields edge up after stronger German industry data

LONDON, June 8 (Reuters) - German Bund yields edged up on Monday after better-than-expected industrial output figures from the euro zone powerhouse improved the growth outlook, keeping the battered government bond market under pressure.

German industrial output rose by 0.9 percent in April, overshooting analysts' expectations in a Reuters poll for a rise of 0.5 percent. Exports also grew at a faster than expected rate.

Improving growth prospects and easing fears of deflation in the euro zone have been among the drivers behind a sharp rise in yields from near zero in mid-April to just below 1 percent last week.

There are signs that the sell-off might be losing momentum, however. On Friday, better-than-expected U.S. non-farm payrolls data pushed yields slightly higher initially, but that move was short-lived and by the end of the day 10-year Bund yields had fallen 10 basis points below their highs.

On Monday, Bund yields rose as high as 0.87 percent after the data, before pulling back to 0.85 percent, 1 basis point higher on the day.

"Stronger German industrial data is the reason why you see yields slightly higher this moment," said Mathias van der Jeugt, rate strategist at KBC.

But the post-payrolls reaction in Bunds was "a signal that the quite sharp volatile moves that we've seen in the past weeks might be over at least for now," he said.

Spanish and Italian 10-year yields were up 2 basis points each at 2.25 percent and 2.27 percent, respectively.

Irish yields rose 1 bps to 1.65 percent after Standard & Poor's raised Ireland's rating for the third time in 12 months. Dublin is now rated A+ as it is reaping the rewards of cutting its debt pile and budget deficit and being the European Union's fastest growing economy.

Keeping pressure on the euro zone's lower-rated bonds, Greece and its creditors looked to still be some way apart on reaching a vital financing for Athens.

The European Union's exasperation with Greece burst into the open on Sunday when its chief executive rebuked leftist Prime Minister Alexis Tsipras and warned that time was running out to conclude a deal to avert default. (Reporting by Marius Zaharia; Editing by Andrew Heavens)

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