Oct 6 (Reuters) - Euro area ultra-long government bond

yields rose on Monday, following a surge in Japan's 30-year

borrowing costs to a record high on expectations of expansionist

economic policies.

Sanae Takaichi, who was poised to become Japan's new prime

minister, has been a vocal advocate of "Abenomics", a hefty mix

of government spending and monetary stimulus.

Expansive policies are expected to increase Japan's

sovereign debt, raising the risk premium investors demand to

hold ultra-long government bonds.

Germany's 10-year Bund yield, the bloc's benchmark, rose 2.5

basis points (bps) to 2.73%. The 30-year yield was up 4 bps at

3.31%.

Japan's 30-year yields were up 14 bps at 3.28%,

after hitting an all-time high at 3.301%.

"Beneath the surface, market moves hint at speculation about

looming Dutch pension flows," said Hauke Siemssen, rate

strategist at Commerzbank, referring to moves in euro zone

sovereign bonds.

"With reports of three large pension funds shifting to the

Defined Contribution scheme on 1 Jan 2026, we suspect that

increased interest to unwind duration hedges could emerge from

these funds," he added.

Under the current Defined Benefit (DB) model, Dutch pension

funds were major buyers of 30- and 50-year bonds. With the new

Defined Contribution (DC) model they no longer need to hedge

long-term liabilities with long-duration assets.

U.S. Treasury yields were up in early London trade, with the

30-year rising 4.5 bps to 4.76%, after rising on

Friday.

Germany's 2-year yields, more sensitive to

expectations for European Central Bank policy rates, were flat

at 2.02%.

Market expectations about the ECB rate outlook remained

roughly unchanged.

Traders priced in an about 35% chance of a 25 bps ECB rate

cut by July. The key rate is seen at 1.93%

in February 2027 from the current 2%.

The yield gap between safe-haven Bunds and 10-year French

government bonds - a market gauge of the risk

premium investors demand to hold French debt - hit 84.74 bps,

its highest since January, on concerns about the French fiscal

outlook.

Prime Minister Sebastien Lecornu plans a tax targeting

individuals with annual incomes of over 250,000 euros to try to

win the Socialist opposition's backing for his government's 2026

state budget, financial daily Les Echos said on Saturday.

France's 30-year bond yields rose 6 bps to

4.39%.