LONDON, June 6 (Reuters) - Most euro zone bond yields hit fresh multi-year peaks on Monday, as unease over rising interest rates to tame inflation held sway in a week where the European Central bank is expected to confirm rate hikes are coming soon.
Southern European bond yields, led by Italy, had fallen earlier in the session after a report that the ECB was planning a new bond-buying programme to help vulnerable economies.
Italy's 10-year bond yield, which last week posted its biggest weekly jump since March 2020, fell as much as 10 basis points before heading back higher.
But in late trade, it hit 3.43%, its highest level since late 2018. German bond yields hit fresh eight-year highs, with 10-year Bund yields rising to 1.33%, up 5 basis points on the day with markets unable to shake bearish momentum.
According to the Financial Times, the ECB is this week set to strengthen its commitment to prop up vulnerable member states' debt markets if they were hit by a bond sell-off as the central bank gets ready to join a global rate-hiking cycle.
"Italian bonds are caught between two opposite forces: they widened last week, almost mechanically, as more hawkish ECB expectations set in, only to tighten this morning on the back of that FT article saying the ECB is getting closer to (agreeing) on a sovereign spreads management facility," said Antoine Bouvet, senior rates strategist at ING, referring to bond spreads.
The spread between 10-year Italian and German bond yields was a touch wider on the day at around 209 bps, after hitting a two-year peak of 230 bps last week.
Rising U.S. Treasury yields added momentum to the late bonds selloff in Europe.
Friday's strong U.S. jobs data have fuelled market expectations that the Federal Reserve will keep hiking rates by an aggressive 50 bps for now.
U.S. 10-year Treasury yields were last up 8 bps on the day at 2.9%, with this week's hefty supply adding to upward pressure on borrowing costs.
Spain's 10-year bond yield also reversed early falls and hit a fresh seven-year high at 2.479%.
Investors have ramped up ECB rate-hike bets further since data last week showed euro zone inflation hit a record 8.1% in May.
On Monday, money markets priced in 130 bps of hikes by year-end, and were pricing in a bigger, 50 bps rise at one of the bank's policy meetings by October.
BofA Securities said it now expected the ECB to raise interest rates by 150 bps this year including half-point moves in July and September. (Reporting by Joice Alves; Editing by Bradley Perrett, Tomasz Janowski and Alison Williams)
