*

Draft 2025 budget, 2026 framework include record

investments

*

German 30-year yield on track for biggest daily rise since

May

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Berlin to issue 19 million euros more debt in Q3 than

expected

(Recasts to focus on German budget, updates moves, adds

context, analyst comment)

By Linda Pasquini and Amanda Cooper

LONDON, June 24 (Reuters) - Germany's long-term

government bond yields rose on Tuesday after the cabinet passed

a draft budget for 2025 and framework for 2026 that include

record investments in both years to stimulate growth in Europe's

biggest economy.

Traders were also watching the Middle East, where Israeli

Defence Minister Israel Katz said he had ordered a strike on

Tehran in response to what he said were Iranian missiles fired

in violation of a ceasefire announced hours earlier by U.S.

President Donald Trump.

The ceasefire had raised hopes of an end to the 12-day war

even as deadly attacks were reported in both countries.

But euro zone government bond yields, unlike most other

asset classes on Tuesday, were largely focussed on the German

news.

German 10-year yields extended earlier small

gains and were last up nearly 5 basis points at 2.55%, while

30-year yields rose almost 8 bps to 3.059%, set for

their biggest one-day increase since the beginning of May. They

had earlier hit their highest level in nearly a month.

"It's all about the new (German) budget and the new supply

of bonds coming into markets in the coming years," said Nabil

Milali, portfolio manager at Edmond de Rothschild Asset

Management, noting that the announced measures included larger

investments than markets had anticipated and were to be

implemented more quickly than expected.

The country's finance agency said earlier in the day that

Germany planned to issue 19 billion euros ($22 billion) more in

debt in the third quarter than initially expected.

It did not plan to issue a 50-year bond this year but the

conditions have been created to do so in the future, it said.

Two-year Schatz yields, which are more sensitive

to interest rates, were little changed at 1.85%, bringing the

spread between 2-year and 10-year yields to its widest in a week

at 69.60 bps.

"The reaction is stronger to the upside on long-end yields

because the short-term bonds are also conditioned by the ECB's

prospects of rate cutting," Milali said.

The European Central Bank can further cut interest rates at

a time of huge volatility in energy markets, policymaker

Francois Villeroy de Galhau told the Financial Times in an

interview published on Tuesday.

Several ECB policymakers were set to speak on Tuesday,

including President Christine Lagarde and chief economist Philip

Lane later on.

Monday's survey of business activity showed the euro zone

economy flat-lined for a second month in June, as the dominant

services sector showed only small signs of improvement and

manufacturing none at all.

For now, traders expect the ECB to deliver one more rate cut

this year as inflation is nearing the central bank's target.

Tuesday's drop in oil prices following the ceasefire

announcement helped preserve those expectations.

It brought losses over the past week to around 10%, which

helped soothe investor concerns about a potential energy price

shock compounding economic uncertainty linked to U.S. tariffs.

Meanwhile, Italian 10-year BTP yields were flat

at 3.507%, leaving the premium over Bunds at 94.60 bps

.

($1 = 0.8624 euros)