2023-10-06 08:08:27
Euro zone bond yields rose slightly on Friday as investors awaited the latest US jobs data, while the gap between German and Italian borrowing costs rose to its widest level since March.
The yield on German 10-year bonds, the benchmark for the bloc, rose 2 basis points (bps) to 2.903%, although it remained below the 12-year high of 3.024% reached on Wednesday.
The yield, which rises when the bond’s price falls, was on track for its fifth consecutive weekly gain, despite falling in the past two sessions.
The closely watched gap between Germany and Italy’s 10-year yields widened to 201.3 basis points – the widest level since mid-March. The yield on Italian 10-year bonds rose to 4.935% in early trading and was up 2 basis points at 4.925%.
Long-term bond yields have risen since the start of September as investors rushed to unwind bets that central banks would soon be forced to cut interest rates due to slowing economies. .
The strength of the American economy surprised traders and the rise in oil prices reinforced fears that inflation would take time to return to 2%. In the background, central banks are withdrawing from the bond market while governments continue to borrow large sums.
“If you think about what was being said at the beginning of the year that we wouldn’t have to wait long for discounts, those days are over,” said Jackie Bowie, managing partner of the market consultancy Chatham Financial. “I think we are finally accepting that the era of cheap money is over.
Investors on Friday awaited the September U.S. nonfarm payrolls report, which is expected to show a slight slowdown in hiring last month.
Economists believe the number of nonfarm payrolls likely increased by 170,000 after increasing by 187,000 in August, with that figure likely to influence Federal Reserve policymakers’ decisions on rates.
The bond sell-off was particularly difficult for Italy, with some investors citing concerns about the government’s debt load after it raised its budget deficit targets last week amid a slowing economy.
Italy’s 10-year yield has risen about 80 basis points since the start of September, compared with a 42 basis point increase for the German equivalent.
European Central Bank board member Isabel Schnabel said on Friday that interest rates may have to be raised again if inflationary pressures prove persistent, in an example of the hawkish rhetoric of many central bankers which worried investors.
Yields on short-term bonds, which are more sensitive to central bank interest rate expectations, have risen much less sharply than those on long-term bonds.
The yield on German two-year bonds remained roughly stable on Friday at 3.142%. It has risen about 15 basis points since the start of September.
The ECB will set its next interest rates on October 26. Prices in derivatives markets show that traders believe there is about a 20% chance that rates will rise another 25 basis points from the current level of 4%.
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