LONDON, Jan 2 (Reuters) - Euro zone government bond

yields rose on Friday, with investors looking ahead to a year

that will be marked again by hefty new debt sales, the impact of

German fiscal stimulus and geopolitical headwinds.

Benchmark 10-year bond yields edged up in early Friday

trade, following Wednesday's rise ‌in U.S. Treasury yields.

European bond markets were closed on Thursday.

Germany's 10-year Bund yield rose 2.5 basis points (bps) to

2.89%. It ​ended 2025 roughly 50 bps higher, the

biggest annual increase since the 2022 global inflation ‍surge.

While French yields also rose, Italian yields ended little

changed and ⁠UK gilt yields, a ⁠source of volatility in the past

year, fell.

Commerzbank expects upward pressure on borrowing costs

from new bonds sales will remain ‌in place.

It calculates that private investors will have ​to absorb a

record high 234 billion euros ($274.81 billion) in net supply

when adjusted for European Central Bank activity this year.

Germany plans to issue a ⁠new 20-year bond, citing Dutch

pension reform as ‍one reason ​why the segment is attractive.

Dutch occupational pensions, the EU's largest, started

transitioning to a new system from January 1 that no longer

promises benefits, allowing the nearly ‍2-trillion-euro sector to

buy riskier assets.

A Deutsche Bank survey published last month found investors

expect 10-year Bund yields to remain unchanged at around 2.9% by

end-2026.

How Germany's spending bonanza pans out this year remains a

key focus.

Zurich Insurance chief market strategist Guy Miller said his

base case was for fiscal stimulus to boost long-term growth

prospects.

"But there are clearly red flags, ​and the ‍market is pretty

pessimistic on the pace and scope of spending," he said.

"It's about how the money will be spent and they need to

focus on the ​structural challenges they face, not simply trying

to stimulate short-term consumption."

On the ECB outlook, some analysts see one more rate cut as

more likely than not, while others suspect the next move could

be a rate hike.

Traders expect no change when the ECB next meets on February

5, and price in a roughly 20% chance of a rate increase by

year-end.

Rate-hike speculation received a boost last month ​when ECB

rate-setter Isabel Schnabel said the next move may be an

increase. She later said she expected no hike in the foreseeable

future.

"We've got policy rates on hold, with an outside chance of a

cut in the first ‍quarter should growth disappoint," said Miller.

($1 = 0.8515 euros)