Euro zone yields rise after U.S. data but head for weekly drop

Reuters

Euro zone yields rise after U.S. data but head for weekly drop

2023 6월 2 일, 오전 10:41 GMT

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Recasts to focus on U.S. data, adds analyst comment and chart, updates prices

By Harry Robertson and Stefano Rebaudo

June 2 (Reuters) - Euro zone government bond yields rose slightly on Friday after data showed the U.S. labour market remains strong, but they were on track for a sharp weekly fall.

Data released on Friday showed that the U.S. economy added 339,000 jobs in May , up from 294,000 in April. That was well above the 190,000 economists polled by Reuters were expecting.

Analysts said the figures increase the likelihood that the Federal Reserve will raise interest rates again. Those expectations boosted U.S. bond yields, pushing their European counterparts higher.

Germany's 10-year bond yield DE10YT=RR, the benchmark for the euro zone, was last up 5 bps at 2.303%, having traded at 2.28% before the data. Yields move inversely to prices.

However, the German 10-year yield was on track for a fall of 24 bps across the week, the biggest weekly drop since mid-March.

It fell for four straight sessions from Monday to Thursday as euro zone countries published data showing that inflation cooled more quickly than expected in May, reducing the pressure on the European Central Bank to keep raising rates.

The German 2-year bond yield DE2YT=RR, which is highly sensitive to European Central Bank interest rate expectations, rose sharply after the U.S. figures and was last up 9 bps at 2.833%. It has fallen 15 bps this week, however.

According to pricing in derivatives markets, traders broadly expect the ECB to hike interest rates by 25 bps in June and then July, taking the main rate to 3.75%.

Analysts said the sharp fall in euro zone inflation in May reduces the chances of any further rate increases after that, with some saying it throws a July hike into question.

By contrast, a debate is raging over whether the Fed will hike rates again from their current 5% to the 5.25% level.

The U.S. data released on Friday also showed that the unemployment rate ticked up to 3.7%, from 3.4% in April, and that wage growth slowed last month, potentially complicating arguments for more rate hikes.

"The employment report was not all positive," Paul Ashworth, chief North America economist at Capital Economics, said in a note to clients.

He said the Fed "can still afford to skip a rate hike in June", reflecting the growing view in markets that the central bank will hold steady this month but then may raise rates again in July.

Italy's 10-year bond yield IT10YT=RR rose after the data but then reversed course and was last down 1 bp at 3.99%. It has fallen more sharply than its peers this week, helping the gap between Italian and German 10-year borrowing costsnarrow to an almost six-month low of 168 bps, in a vote of investor confidence in Italy.

Payroll growth remains strong Payroll growth remains strong https://tmsnrt.rs/3deZoGA

The Italian premium is falling https://tmsnrt.rs/3qmGTWR

Reporting by Harry Robertson and Stefano Rebaudo, editing by Sharon Singleton, Kirsten Donovan and Nick Macfie

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