Euro zone bond yields dip from highs on Fed, inflation data

[LONDON] Euro zone bond yields dipped on Monday from highs driven last week by strong US jobs numbers ahead of crucial US inflation data due later this week.

Yields had jumped last Friday after stronger than expected US jobs data for July drove US Treasury yields higher, with the report seen as key to the Fed decision on when to start tapering its bond buying.

Euro zone bonds followed suit, giving German 10-year yields their biggest daily jump since June 17.

Germany's 10-year yield, the benchmark for the region, was down one basis point to -0.47 per cent by 0945 GMT, below Friday's -0.451 per cent peak as an unexpected slowdown in Chinese export growth with a rise in producer prices, alongside a slump in oil prices, left stock markets looking for direction.

Germany's 30-year yield was at -0.02 per cent after turning positive on Friday, bringing the entire German yield curve back into negative territory.

Focus was on a number of US Federal Reserve policymakers due to speak on Monday and US inflation data due on Wednesday, which will be watched for further clues of when the Fed might start tapering.

Antoine Bouvet, senior rates strategist at ING, noted there were not many euro zone-specific factors to drive the bloc's bond market this week.

"I think the tailwinds to euro zone government bonds are still pretty strong ... So we should get another week or two of rally before supply kicks in in September," Mr Bouvet said.

He cited lower supply and liquidity over the summer and appetite from investors for carry trades - where cheap funding is used to buy higher-yielding assets - as tailwind factors.

Euro zone government bond issuance is set to fall to the lowest weekly volume of the year, with only a four billion euro (S$6.4 billion) German 10-year bond reopening scheduled, according to Commerzbank.

Investor morale in the euro zone fell much more than expected in August to a three-month low on a sharp drop in expectations due to concerns that new lockdown restrictions could loom in the autumn and beyond, Sentix said on Monday.

But with concerns around the Delta coronavirus variant being among drivers of the recent slump in bond yields, the data had little impact on the market.

Earlier, data also showed German exports rose more than expected in June despite persistent supply bottlenecks in manufacturing. There was also little market reaction to comments from European Central Bank (ECB) policymaker and German central bank governor Jens Weidmann, who on Sunday said the ECB must tighten monetary policy if it needs to counter inflationary pressures and cannot be put off from doing so by the financing costs of euro zone states.

REUTERS