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Euro zone bond yields rise after U.S. jobs data

Published by Jessica Weisman-Pitts

Posted on December 2, 2022

Featured image for article about Top Stories

By Alun John

LONDON (Reuters) – European government bond yields rose after Friday data showed U.S. employers hired more workers than expected in November and raised wages, complicating the Federal Reserve’s intention to start slowing the pace of its interest rate hikes this month.

Germany’s 10-year bund yield, the benchmark for the euro zone, rose as much as 5 basis points on the day to 1.872%, having earlier traded down as low as 1.76%, its lowest since Sept 19.

The German two-year yield, sensitive to interest rate expectations, rose as much as 8 bps to 2.12%, compared with 1.958% before the data.

Italy’s 10-year bond yield rose as much as 8 bps 3.758%, having earlier dropped as low as 3.647%, its lowest since late August.

The moves followed larger shifts in U.S. Treasury yields following the data, which showed U.S. nonfarm payrolls increased by 263,000 jobs last month, compared to a Reuters estimate of 200,000.

Government bond yields have dropped sharply in recent weeks have driven by hopes the U.S. Federal Reserve will move away from its aggressive pace of interest rate hikes, which earlier in the year badly bruised bond prices and sent yields soaring.

This rebound had been underscored this week by a dovish speech by Fed chair Jerome Powell on Wednesday – as well as U.S. data on Thursday that raised concerns about slowing economic growth while also indicating a slowdown in inflation.

But Friday’s data undermined this narrative.

“Market attention is on acceleration in wage growth – a key concern for the Fed – and wondering whether this is a reality check after the reassurance they derived from Powell’s words earlier in the week,” Richard McGuire, head of rates strategy at Rabobank, said.

The benchmark U.S. 10 year yield was last up 5 bps at 3.5719%, having briefly touched as high as 3.638%.

The closely watched spread between Italian and German 10-year yields was 190 basis points.

(Reporting by Alun John; Editing by Mark Potter, Toby Chopra and Andrew Heavens)