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German 30-year yields reach highest since 2011

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Driven by investor focus on likely rise in fiscal spending

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Ukraine peace deal could also lead to increase in bond

supply

By Stefano Rebaudo

Aug 12 (Reuters) - German 30-year yields rose to their

highest level since 2011 on Tuesday, driven by renewed investor

focus on expectations of a sharp increase in fiscal spending,

while U.S. economic data released earlier came in roughly in

line with forecasts.

Germany is about to increase its fiscal spending massively

to revive economic growth and scale up military investments.

"I don't see a specific driver today, but the move in

long-dated German yields isn't surprising given the low volumes

and the broader economic backdrop," said Michiel Tukker, rate

strategist at ING, citing the Dutch pension reform and

expectations of increased issuance from Germany.

Germany's 30-year government bond yield was up 7 basis

points (bps) at 3.30%, after hitting 3.31%, its highest level

since 2011.

The Dutch pension system is depriving the euro zone's $10

trillion government bond market of a key buyer of its long-term

debt, just as state funding needs a boost.

A peace deal in Ukraine could also lead to a further

increase in bond supply, as Europe remains committed to

supporting the country's reconstruction.

Russian forces have made a sudden thrust into eastern

Ukraine, a move that may be designed to increase the pressure on

Kyiv to give up land as the U.S. and Russian presidents prepare

to meet. Ukrainian President Volodymyr Zelenskiy said that an

unjust peace would not last long.

U.S. long-dated bonds also underperformed with 30-year

yields up 4.5 bps to 4.88%.

Euro zone borrowing costs had held steady for most of the

session after the United States and China rolled over a trade

truce for 90 more days, as expected.

Policy-sensitive German two-year yields were last

up 0.5 bps at 1.97%, while German 10-year yields

rose 5 bps to 2.74%.

Two-year U.S. Treasury yields fell after data showed that

U.S. consumer price inflation was roughly in line with the

expectations of economists in July, likely clearing the way for

the Federal Reserve to cut interest rates in September.

U.S. consumer prices increased moderately in July, though

underlying inflation posted its largest gain in six months.

"Goods that rely heavily on imports are facing pronounced

upward price pressure," said Katy Stoves, investment manager at

Mattioli Woods.

"However, inflation from services, not subject to tariffs

and by far the bigger contributor to the U.S. economy, may help

prevent overall U.S. inflation increases," she added.

Italy's 10-year government bond yields rose 5

bps to 3.56%, leaving the yield gap with safe-haven Bunds at 81

bps, its lowest level in over 15 years.