Germany's 10-year yield touches two-month high, focus on supply

By Yoruk Bahceli

Sept 16 (Reuters) - Germany's 10-year yield touched a new two-month high on Thursday as issuance was set to pick up again.

Austria started the sale of a new 15-year bond in a syndication, according to a lead manager memo seen by Reuters.

In auctions, Spain will raise up 5.5 billion euros from bonds due 2024, 2026 and 2031.

France will raise up to 9 billion euros from bonds due 2024, 2026 and 2027, and up to another 2 billion euros from inflation-linked bonds due 2026, 2031 and 2040.

Germany's 10-year yield, the benchmark for the bloc, rose to a two-month high at -0.293 and was up less than a basis point to -0.30% by 0722 GMT.

Michael Leister, head of interest rates strategy at Commerzbank, said heavy supply this week is probably taking its toll on German bonds, which have accelerated their underperformance against U.S. Treasuries this week.

The gap between 10-year German and U.S. yields tightened six basis points this week, putting German bonds on track for their biggest weekly underperformance against U.S. Treasuries since mid-June.

At 161 bps, the spread is near the tightest since late July.

Focus will also be on European Central Bank head Christine Lagarde, who is due to speak at 1200 GMT. The ECB last week decided to slow its pandemic emergency bond buying during the fourth quarter, but calmed fears of a potentially more hawkish move.

A flurry of U.S. data including retail sales due at 1230 GMT will be another focus point for bond investors.

Analysts at Mizuho said U.S. data on Thursday could provide more clarity around the macroeconomic picture ahead of next week's U.S. Federal Reserve meeting, which will also be a key event for euro zone bonds, which often move in tandem with U.S. Treasuries.

The data follows U.S. inflation data on Tuesday, which showed consumer prices increased slightly slower than expected in August, lending further evidence to policymakers' conviction that currently high inflation is transitory.

"A mixed conclusion from the data should leave expectations for the meeting unchanged, but a set of positive surprises... could improve the case for the Fed hawks," Mizuho's analysts wrote. (Reporting by Yoruk Bahceli Editing by Raissa Kasolowsky)

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