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German bond yields rose to their highest since early August after U.S. central bank policymakers indicated that they see another interest rate hike this year and also announced a start of the “Great Unwinding” of a decade of aggressive stimulus.
The U.S. Federal Reserve said it will start in October to trim its $4.2 trillion in holdings of U.S. Treasury bonds and mortgage-backed securities acquired in the years following the 2008 financial crisis.
The Fed's announcement caused the yield on two-year Treasuries to its highest since November 2008, and those on 10-year debt notched a six-week peak of 2.89 percent. Euro zone government bond yields also rose, increasing around 3-5 bps across the board.
The yield on Germany's 10-year government bond increased to 0.50 percent, its highest since early August. It retreated by late trade to nearly 0.45 percent, still higher by almost two bps on the day.
The gap between U.S. and German 10-year borrowing costs expanded to 184 bps on Wednesday, before tightening on Thursday.
Spain sold 4.7 billion euros of bonds on Thursday against a backdrop of political tensions between Madrid and Catalonia. Spanish government bonds moved almost in line with peers, the 10-year yield increasing four bps to top 1.50 percent.
Greek bond yields climbed four bps to 5.56 percent after a report that Athens was considering swapping 20 small bond issues for four or five new ones as it braces for its exit in its international bailout.
