Euro zone yields rose on Friday after German industrial orders jumped in June, while investors await crucial United States data after Thursday’s numbers failed to provide further clues about whether the Federal Reserve would hike rates one more time this year.
German orders rose against expectations for a drop, driven by gains in the aerospace sector that left analysts divided over whether the reading represented a sustainable upturn.
A Reuters survey of 80 economists expects US payrolls to increase by 200,000 jobs last month after rising 209,000 in June. Thursday’s data showed the number of Americans filing new claims for unemployment benefit rose slightly last week, while layoffs dropped in July as labor market remained tight.
“Our base case remains that Fed rates have already peaked for the cycle. But with two more consumer price inflation readings and two more monthly jobs releases before the Fed’s next policy meeting in September, investor sentiment could continue to shift,” Mark Haefele, Chief Investment Officer at UBS Global Wealth Management, said in a research note.
Germany’s 10-year government bond yield, the euro area benchmark, rose 4 basis points (bps) to 2.60%, a 3-week high.
The German yield curve slightly deepened its inversion after reaching the least inverted level since mid-June on Thursday.
The gap between 2-year and 10-year yields was at -60.7 bps after hitting -59.2 bps the day before.
Analysts said the spread between short-dated and long-dated yields might further narrow its inversion as more apparent signs of a global economic slowdown or falling inflation are required to justify the rate cuts that are currently reflected in the inverted yield curves.
Investors have been focused on US government bonds markets after Fitch downgraded the US credit rating and the Treasury Department’s announced offering of $103 billion in Treasuries as it faces a growing deficit and the need to balance the overall profile of its debt issues.
A bond selloff drove US 10-year yields up by around 20 bps since the announcements, affecting the euro area bond market.
As Deutsche Bank analysts put it “the bond vigilantes have camped out on the lawn of the US fixed income market this week as the selloff entered its third consecutive day on Thursday in the shadow of US Treasury credit quality jitters and confirmation of increased Treasury supply.”
Italy’s 10-year yield, the benchmark of the euro area’s periphery, rose 3 bps at 4.28%, with the spread between Italian and German 10-year yields roughly stable at 168 bps. — Reuters
