Euro zone bond yields steady before consumer data

Germany's 10-year government bond yield held steady near six-month highs on Friday before the release of euro zone consumer confidence data.

Bond yields have risen this week, following the release of better-than-expected business confidence data and an interest rate increase by the Swedish central bank that ended negative rates, causing speculation about the European Central Bank's policy next year, where the key interest rate is at minus 0.5%.

"There is no convincing single reason for this movement in yields," UniCredit analysts said in a note sent out to clients.

"The most likely explanation is a mixture of uncertainty regarding the monetary policy outlook for next year ... improving sentiment and profit taking after a strong year-todate performance and ahead of the year end."

Analysts also stressed that thin year-end trading volumes meant it took little to move markets.

Market sentiment saw a boost after U.S. Treasury Secretary Steven Mnuchin said that the United States and China would sign phase one of their trade agreement in early

January.

Mnuchin said the documentation was completely finished and just undergoing a technical "scrub", though Beijing has so far dodged all details of the deal.

Most 10-year bond yields were unchanged in early trade , with Germany's benchmark at - 0.231%, off Thursday's sixmonth high at -0.208%.

Italian yields gained, with the 10-year bond rising 2 basis points to 1.414%. Data on Friday showed that morale among Italian businesses and consumers improved in December.

The "flash" euro zone consumer confidence reading is due at 1500 GMT. A minus 7 reading is expected by a Reuters poll, a marginal improvement on last month's figure.

It follows Germany's Ifo business sentiment survey on Wednesday, which beat expectations and implied growth of 0.2% in the fourth quarter for the euro zone's largest economy.

Meanwhile, Emerging market assets were mostly flat on Friday as trading thinned ahead of the Christmas holidays, while the Turkish lira firmed after falling for five straight sessions in the wake of worsening political ties between Ankara and

Washington.

The lira rose 0.4% and was on course for its best day in a month. The currency, still nursing losses after sliding nearly 30% last year, has come under pressure as the United States steps up efforts to punish Turkey, partly for its purchase of Russian S-400 defence systems.

The lira also missed out on a broader trade-fuelled rally this week, which put the MSCI index of emerging market currencies on track for three straight weeks of gains.

Investors, comforted by a preliminary trade truce between the United States and China, are viewing riskier assets in the developing world more favourably towards the end of the year.

U.S. Treasury Secretary Steven Mnuchin said the world's top two economies would sign their "phase one" trade pact in early January, adding that it had already been put down on paper and would not be subject to renegotiation.

"Going forward, 'phase one' implies a ' phase two' so markets will be keeping a close eye on what this actually means in the broader scheme of things and whether a further de-escalation in tariffs is going to commence," said Simon Harvey, FX analyst at Monex Europe.