Euro zone bond yields jump as ECB set to release statement on govt deposits

(Reuters) - Euro zone bond yields jumped on Thursday, after European Central Bank chief Christine Lagarde said that the bank would release a statement on how it remunerates government deposits.

Germany's two-year bond yield was up 19 bps to 1.27% by 1300 GMT, after touching the highest since June at 1.305%. The 10-year yield was up 12 bps to 1.69%.

Currently, the ECB applies a 0% cap to the interest rate on government deposits since its July rate hike.

Analysts said without a change following Thursday's rate hike, it would incentivize government debt offices to cut their cash balances at their central banks.

That has put downward pressure on bond yields and widened swap spreads to levels not seen since the euro zone debt crisis in recent weeks.

Analysts have warned it could lead debt offices to take out more collateral, in the form of high quality debt, out of the market, exacerbating a shortage of such bonds after years of ECB asset-buying have reduced the free float available for investors.

(Reporting by Yoruk Bahceli; editing by Dhara Ranasinghe)