Euro zone bond yields rise before inflation data, Powell speech

By Harry Robertson

LONDON, Nov 30 (Reuters) - Euro zone bond yields climbed on Wednesday as investors awaited the release of November inflation data for the single-currency bloc and a speech by U.S. Federal Reserve Chair Jerome Powell.

Lower than expected inflation readings for Germany and Spain helped bond yields, which move inversely to prices, drop on Tuesday.

Yet they rebounded somewhat on Wednesday ahead of the release of preliminary November inflation data for the euro zone, due at 1000 GMT. Data from France on Wednesday showed that year-on-year inflation came in at 6.2% in November, the same as October and in line with expectations.

Germany's 10-year government bond yield was up 3 basis points (bps) to 1.94%, after falling 8 bps on Tuesday.

The yield has shot up this year as the European Central Bank (ECB) has raised interest rates to tame inflation, causing investors to demand higher returns on government debt. It started the year at around -0.2% but hit an 11-year high of 2.532% in October.

Economists polled by Reuters expect the headline year-on-year euro zone inflation rate to have slowed to 10.4%, down from a record 10.6% in October.

"Country figures from Spain and Germany point to an easing of headline inflation from October's 10.6%, on the back of lower energy inflation," Danske Bank analyst Kristoffer Kjaer Lomholt said in a note.

"Signs of peaking underlying inflation are less clear-cut," he added, citing rising food prices.

Germany's 2-year yield, which is more sensitive to ECB interest rate expectations, rose 4 bps to 2.137% on Wednesday, a level it has hovered around since late October.

Italy's 10-year yield was 4 bps higher at 3.863%. That took the gap between the German and Italian 10-year yields to 191 bps.

Investors also awaited a speech by Fed Chair Jerome Powell to the Brookings Institution on the economic outlook, scheduled for 1830 GMT.

Global bond yields have dropped sharply since data earlier this month showed that U.S. inflation came in lower than expected in October, raising hopes the Fed's aggressive rate hikes may soon be over.

Yet ING rates strategist Antoine Bouvet cautioned that Powell could trigger a drop in bonds, and a rise in yields, by pushing back against those hopes.

Also on the calendar today is a German auction of 10-year government bonds. (Reporting by Harry Robertson Editing by Peter Graff)