Southern European bond yields spike as Lagarde speaks

Oct 28 (Reuters) - Southern European bonds were set for their biggest sell-off in over a year as ECB President Christine Lagarde spoke at the bank's policy meeting.

Euro zone bond yields were already up sharply ahead of the meeting as money markets moved to price in a full probability of a 20 basis point ECB rate hike by December 2022. While some investors had expected Lagarde to calm markets, those bets increased as Lagarde spoke. EUROIS12X13=TPEU EUREON1M=

Italy's 10-year yield extended an earlier rise and rose above 1% for the first time since late May. Up 15 basis points on the day, it was set for its biggest daily jump since April 2020. IT10YT=RR

The closely-watched gap between 10-year Italian and German yields rose to 115 bps, the highest since May.

Germany's 10-year bond yield, the benchmark for the euro area, extended an earlier rise and rose sharply as Lagarde spoke about potential economic outperformance, and was last up 7 bps at -0.105%. DE10YT=RR

The euro was broadly steady after the ECB policy announcement and was last up up 0.3% at $1.1638.

Euro zone shares .STOXXE slightly reduced their gains as Lagarde spoke, and were last up 0.1%, while rate-sensitive banks .SX7E turned flat on the day as bond yields rose.
Reporting by the London Markets Team, writing by Yoruk Bahceli;

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