By Abhinav Ramnarayan

By Abhinav Ramnarayan


LONDON (Reuters) - Euro zone bond yields rose sharply on Thursday as comments from U.S. Federal Reserve Chair Janet Yellen overnight were viewed as ratcheting up pressure on the European Central Bank's commitment to its loose monetary policy.


German, Dutch and Finnish government bond yields hit one-month highs ahead of the ECB's meeting later on Thursday, at a time when some ECB members are calling for an early end to its bond-buying scheme.


Minutes of the ECB's December meeting noted that "a few members" had rejected proposals to continue purchases beyond March.


Analysts said these dissenters were given some credence by positive economic data and the tighter policy stance in the United States.


Fed chair Yellen said on Wednesday that it "makes sense" for the U.S. central bank to gradually lift interest rates, putting the focus on inflationary pressures on the global economy.

"The Yellen comments really suggests that the U.S. is committed to multiple rate hikes this year. Up to now the tightening cycle has been glacial and they want to step it up," said ING strategist Martin van Vliet.

"It highlights the underlying inflationary pressures that are mostly in the U.S. but also unquestionably in Europe."

Euro zone bond yields rose 4-6 basis points across the board, with Germany's 10-year government bonds rising 5 basis points to a one-month high of 0.33 percent.

Dutch and Finnish 10-year government bond yields also hit one-month highs, rising 5 bps each to 0.50 percent and 0.53 percent respectively.

"You should remember also that real yields were lagging inflation expectations, so some of these moves are also a reaction to how low yields were," said van Vliet. "It also due to primary supply, which has been quite high."

A key indicator of long-term euro zone inflation expectations, the five-year, five-year breakeven forward <EUIL5YF5Y=R>, was at 1.75 percent on Thursday morning, close to its one-year high of 1.77 percent at the start of the year.

However, most strategists are expecting the ECB to leave its monetary policy stance unchanged after extending its bond-buying scheme in December to the end of 2017.

ING strategists said they would look for a confirmation that an increase in issue and issuer limits is legally out of the question and what other changes to the program would be needed if the ECB is forced to increase the size of purchases again.

Euro zone government debt supply cranked into gear again, and after Belgium and Italy raised 12 billion euros between them from the sale of 10-year and 15-year bonds respectively, the focus on Thursday shifted to the short end.

France will sold nearly 8 billion euros of three-year and five-year bonds while Spain raised 4.8 billion euros at a triple bond auction.

(Editing by Alison Williams)