Euro zone bond yields trade near seven-month lows before US jobs data

LONDON, Dec 7 – Euro zone bond yields were little changed on Thursday after hitting multi-month lows the previous day, as investors waited for impetus from U.S. jobs data.

Germany’s 10-year bond yield was last down less than 1 basis point (bp) at 2.205%, just above its lowest level in seven months.

Bond yields, which move inversely to prices, have tumbled this week after influential European Central Bank official Isabel Schnabel told Reuters that further interest rate hikes were “rather unlikely” given that inflation slowed to 2.4% in November.

Italy’s 10-year bond yield was last up unchanged at 3.957% after falling to 3.95% on Wednesday, the lowest since July.

The US employment report on Friday will give investors a sense of whether their expectations for steep Federal Reserve interest rate cuts next year are appropriate. Before that, US weekly jobless claims data is due at 1330 GMT on Thursday.

Pricing in money markets shows that investors currently expect around 120 bps of rate cuts in the U.S. and 140 bps in the euro zone by December next year.

Sonja Laud, chief investment officer at Legal & General Investment Management, said at an event on Wednesday that she expects euro zone inflation to remain above the ECB’s 2% target by the end of 2024.

“If we’re right on that, clearly we might not see the full extent of the rate cuts,” she said.

Yet she said it has historically paid off to buy bonds when central banks have finished hiking interest rates.

“This journey might not be straightforward, but if you accept (that and) you got in here at the top, then you might well be in for a very profitable journey.”

Germany’s 2-year bond yield, which is sensitive to ECB rate expectations, was last down 1 bp at 2.596% after falling to its lowest since May at 2.57% on Wednesday.

Global bond yields rose in the Asian session overnight, with Deutsche Bank credit strategist Jim Reid pointing to comments from Bank of Japan officials that pushed up Japanese market rates.

BoJ Deputy Governor Ryozo Himino said on Wednesday that an exit from ultra-loose monetary policy, if done properly, could reap rewards for the country’s economy.

Japan’s 10-year bond yield rose around 11 bps overnight and last stood at 0.756%.

Japanese investors are large holders of foreign bonds and some analysts have said a sharp rise in domestic yields could suck money back to Japan and out of global assets.

Mixed economic data on Thursday showed that German industrial output unexpectedly fell for a fifth month in a row in October, while Chinese exports grew for the first time in six months.

(Reporting by Harry Robertson; Editing by Angus MacSwan)