Euro zone bond yields trade near seven-month lows before U.S. jobs data
Euro zone bond yields remained steady on Thursday following a dip in the previous day, as investors anticipated the release of U.S. jobs data for market direction. Germany’s 10-year bond yield was marginally down, hovering just above its lowest level in seven months. The decrease in bond yields comes after European Central Bank official Isabel Schnabel stated that further interest rate hikes were unlikely due to a slowdown in inflation. Meanwhile, Italy’s 10-year bond yield remained unchanged after reaching its lowest level since July on Wednesday.
Investors are eagerly awaiting the U.S. employment report on Friday, which will provide insights into whether the anticipated Federal Reserve interest rate cuts in the coming year are on track. Prior to that, U.S. weekly jobless claims data is scheduled for release on Thursday. Currently, investors are expecting rate cuts of about 120 bps in the U.S. and 140 bps in the euro zone by December next year, as indicated by money market pricing.
In a recent event, Sonja Laud, chief investment officer at Legal & General Investment Management, expressed her belief that euro zone inflation will remain above the ECB’s 2% target by the end of 2024. She suggested that if this prediction holds true, the extent of the rate cuts might not be fully realized. Laud added that historically, investing in bonds post-central bank interest rate hikes has proven profitable, although she acknowledged that the journey may not be without challenges.
Germany’s 2-year bond yield, which tends to be sensitive to ECB rate expectations, also experienced a decline, reaching a low not seen since May. The global bond market experienced a rise in yields during the Asian session, attributed to comments made by Bank of Japan officials elevating Japanese market rates. Bank of Japan Deputy Governor Ryozo Himino emphasized that an exit from an ultra-loose monetary policy, if done properly, could yield economic benefits. Consequently, Japan’s 10-year bond yield rose overnight.
Mixed economic data emerged on Thursday, indicating that German industrial output unexpectedly contracted for the fifth consecutive month in October. However, Chinese exports recorded growth for the first time in six months.
As investors eagerly await the U.S. jobs report, the movement of bond yields in the euro zone is likely to be influenced by the data. The expectation of rate cuts in both the U.S. and the euro zone could further shape market sentiment. However, uncertainties surrounding inflation and economic indicators serve as potential challenges to the anticipated rate cuts.
