Top Stories
Top Stories
Wires

UPDATE 2-Euro zone bond yields up as Fed tempers big rate cut bets, Austria taps 100-year bond

Dhara Ranasinghe

taps 100-year bond@

* Fed tempers bets for big July rate cut

* Euro zone yields higher 2-3 bps across board

* Austria prices 5-yr bond issue below deposit rate

* Also taps 'century' bonds for over 1 bln euros

* Euro zone periphery govt bond yields http://tmsnrt.rs/2ii2Bqr (Updates prices)

LONDON, June 26 (Reuters) - Germany's 10-year bond yield nudged off record lows on Wednesday as comments from U.S. Federal Reserve officials tempered the market's most aggressive U.S. rate cut bets.

The spotlight also fell on Austria, which priced a five-year bond issue below the ECB's deposit rate and tapped its 'century' bond.

Fed Chairman Jerome Powell and St.Louis Federal Reserve Bank President James Bullard on Tuesday pushed back on market expectations and presidential pressure for a significant U.S. interest rate cut of half a percentage point as soon as its next meeting.

News that the United States hopes to re-launch trade talks with China after President Donald Trump and President Xi Jinping meet in Japan on Saturday lifted stocks and put some upward pressure on yields as well.

Most 10-year euro zone bond yields were up 2-3 basis points on the day, with Germany's Bund yield at minus 0.306%, off record lows hit Tuesday at almost minus 0.34%.

"This selloff was led by the Fed comments overnight, they were not so dovish and puts down the 50 basis point rate cut bets that markets were hoping for," said Pooja Kumra, European rates strategist at TD Securities.

According to latest data from CME Group's FedWatch program, federal funds futures implied that traders saw a 27% chance of the Fed lowering rates by half a percentage point in July, compared to 42% on Monday.

Still, the overall trend in government bond markets, where yields have tumbled fast and furiously this year, remained very much in place.

That's because of solid expectations that rate cuts from the European Central Bank and possibly other easing measures are coming soon. A resurfacing of geopolitical tensions in the Middle East in recent weeks have added to relentless demand for safe assets such as German bonds.

Germany's 10-year bond yield is down 55 bps so far this year, French yields are flirting with negative territory.

"The ECB compass is back at easing and unless we get a dramatic pick-up in data we are stuck at current levels for some time," said KBC rate strategist Mathias van der Jeugt.

More evidence of demand for higher rated euro zone bonds came on Wednesday with Austria's sale of five and 100-year bond.

Together, the bond deals drew orders of over 28 billion euros, according to a lead manager.

(Reporting by Dhara Ranasinghe; Editing by Toby Chopra, William Maclean)