March 11 (Reuters)Euro zone bond yields fell slightly on Friday, stabilizing after an update on the European Central Bank’s surprise decision to end bond purchases in the third quarter despite uncertainty surrounding the war in Ukraine.

The ECB’s decision, which also includes smaller bond purchases than previously announced under its conventional bond-buying program, the APP, had pushed eurozone bond yields higher on Thursday, investors expecting the bank to refrain from making commitments.

On Friday, bond yields across the bloc fell slightly, but the moves were marginal and yields remained close to Thursday’s highs.

Germany’s 10-year yield, the bloc’s benchmark, fell 1 basis point to 0.26% at 0803 GMT, after hitting a three-week high of 0.304% on Thursday, more than offsetting the sharp drop in bond yields following the Russian invasion. from Ukraine.

Germany’s two-year yield, which is sensitive to interest rate expectations, fell 3 basis points to -0.43% after jumping 14 basis points on Thursday. DE2YT=RR

Its five-year yield fell 2 basis points and slipped back into negative territory after rising above 0% for the first time since Feb. 28 on Thursday. DE5YT=RR

The Italian 10-year rate fell 1 bp to 1.91% after jumping more than 20 bp following the ECB meeting. IT10YT=RR

That kept the closely watched risk premium on Italian debt at 163 basis points, down from around 150 basis points before the ECB’s policy decision. DE10IT10=RR

Italian debt – a key beneficiary of the ECB’s stimulus – was the worst hit in the bloc on Thursday and the sale of its debt came after a rally earlier in the week following a report that the European Union could jointly unveil debt sales to finance war-related defense and energy spending in Ukraine.

“Bond markets yearn for a white knight as many more billions need to be funded as the ECB heads for the exit. The direction of travel seems clear,” said Christoph Rieger, head of rates and credit research. at Commerzbank.

“Weaker liquidity may exacerbate moves, but we don’t think revaluation is over yet.”

Italy will raise up to 7.75 billion euros ($8.51 billion) through an auction of bonds maturing in 2024, 2029 and 2037 on Friday.

With the ECB on the sidelines, the focus was on an EU summit due to resume at 09:00 GMT to address defense and energy spending issues.

Divisions have emerged over the possibility of a new joint debt issuance, advocated by countries like France and Italy but opposed by Germany, the Netherlands and others.

($1 = 0.9107 euros)

(Reporting by Yoruk Bahceli; Editing by Susan Fenton)

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