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Euro zone bond yields rise, focus on UK gilts, inflation data

By Stefano Rebaudo

Sept 29 (Reuters) - Euro zone government bond yields rose on Thursday as German data shifted the focus of investors to surging inflation as they resumed selling gilts after the Bank of England (BoE) stepped in to quell a storm in the UK market.

Euro area yields plunged on Wednesday, tracking moves in UK gilts as the BoE announced the immediate launch of an emergency bond-buying programme to prevent the market turmoil from spreading.

Analysts were cautious about the BoE measures, arguing that to restore markets' confidence, the British Treasury needs to announce a credible plan to get debt under control to restore confidence.

Germany's 10-year government bond yield, the benchmark of the bloc, rose 8 basis points (bps) to 2.235%. It hit its highest since December 2011 at 2.255% on Tuesday.

The UK 10-year gilt yield rose 15 bps to 4.16%, after falling almost 50 bps the day before.

Numbers in the German state of North Rhine-Westphalia suggested a double-digit figure for inflation across the country is on the cards.

Germany's federal statistics office will publish a flash estimate for nationwide September data later Thursday.

"If (North Rhine-Westphalia numbers are) mirrored by data from other federal states, which are due to be published in the morning, consumer prices may rise by nearly 10% year-on-year," UniCredit analysts said in a note.

"We expect inflation rates to remain exceptionally high until the end of the year before likely gradually subsiding."

Analysts polled by Reuters expect EU-harmonised consumer prices (HICP), due on Friday, to have increased by 10% in September.

Meanwhile, European Central Bank officials reiterated their hawkish stance, advocating a 75-bps-rate hike at the next policy meeting and a quick start of quantitative tightening.

Italy's 10-year government bond yield rose 12 bps to 4.71%, after hitting its highest level since February 2013 at 4.927% the day before.

The spread between Italian and German 10-year yields was at 247 bps.

Analysts said that while Italian politics do not affect the bond market much, the main worries for Italian bond investors are a possible quantitative tightening by the ECB and a further rise in inflation across the euro area. (Reporting by Stefano Rebaudo, editing by Mark Heinrich)

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