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LONDON, Oct 10 (Reuters) – German government bond yields edged lower on Monday after blasts rocked the Ukrainian capital Kyiv and other major Ukrainian cities, prompting a move into traditional safe-haven assets such as core government bonds.

Large explosions shook Kyiv and other cities on Monday morning in apparent Russian revenge strikes after President Vladimir Putin declared an explosion on the bridge to Crimea to be a terrorist attack.

Weak services data from China, renewed COVID concerns in the country and a set of new export controls introduced by the Biden administration, including a measure to cut off China from certain semiconductor chips, were also weighing on sentiment, according to Mizuho rates strategist Evelyne Gomez-Liechti.

“The Crimean bridge and the explosions really didn’t fit well with risk sentiment,” Gomez-Liechti said.

“Those are the drivers that have probably hurt sentiment and are driving some strength in the bond markets.”

By 0800 GMT, Germany’s 10-year government bond yield, the euro area’s benchmark, was down 3.5 basis points at 2.16%. Bond yields move inversely to prices.

Germany’s 2-year yield was down 8 bps to 1.783%.

US government bond markets are closed on Monday for the Columbus Day holiday.

Euro zone government bond yields had jumped on Friday after strong US jobs data dampened expectations that the Federal Reserve will slow the pace of interest rate hikes.

Nonfarm payrolls increased by 263,000 last month, the US Labor Department said, above expectations of 250,000 in a Reuters poll.

“The accelerating sell-off on Friday underscores how data-sensitive the market remains,” said Commerzbank rates strategist Rainer Guntermann in a note.

Guntermann highlighted that the unemployment rate declined back to a record low which provides “no evidence for the Fed to slacken the fight against inflation”.

Investors were now bracing for key US inflation data on Thursday this week for clues on the size of the next Federal Reserve rate hike next month.

“I think the bar is very high if you want to see the Fed doing anything less than 75bps,” Mizuho’s Gomez-Liechti added.

Money markets are pricing in an over 85% chance of a fourth consecutive 75 basis-point rate hike at the November meeting, according to Refinitiv data.

European Central Bank (ECB) officials have affirmed their commitment to take inflation back down to target, even in the face of a slowing economy.

France’s Francois Villeroy de Galhau said the central bank is engaged in bringing down inflation to 2% in two to three years from now, while Germany’s Joachim Nagel said on Friday that the next policy meetings must send out “clear signals” on reacting on inflation.

In Britain, the Bank of England said it was ready to increase the size of its daily purchases of government bonds to ensure sufficient capacity ahead of the end of its emergency programme to calm recent turmoil in the gilt market which is due to end on Friday.

Britain’s 10-year gilt yield was up 1.5 bps to 4.25%.

(Reporting by Samuel Indyk, editing by Ed Osmond)

 

LONDON, Oct 10 (Reuters) – The Bank of England sought to ease concerns about this week’s expiry of its program designed to calm turmoil in the government bond market, announcing new safety-net measures including a doubling of the maximum size of its debt buy-backs.

Finance minister Kwasi Kwarteng last month sparked a bond rout with plans for unfunded tax cuts, prompting the BoE to say on Sept. 28 it would buy up to 5 billion pounds (USD 5.53 billion) a day of gilts of at least 20 years duration until Oct. 14.

So far, the BoE has bought far less than the minimum daily limit, but on Monday it said it was taking further steps to ensure the scheme concludes smoothly.

“In the final week of operations, the Bank is announcing additional measures to support an orderly end of its purchase scheme,” the British central bank said in a statement.

Although the maximum auction size was raised to 10 billion pounds in Monday’s operation the BoE bought only 853 million pounds’ worth of debt.

That left its total of bonds acquired since the launch of the emergency program at less than 6 billion pounds, compared with the 50 billion pound maximum it could have bought.

The BoE said in its statement earlier on Monday that it was prepared to deploy unused purchasing capacity in the remaining auctions this week.

The BoE also said it would launch a temporary expanded collateral repo facility to help banks ease liquidity pressures facing client funds caught up in the turmoil, which threatened pension funds.

The liquidity insurance operations would run beyond the end of this week and would accept a wider range of collateral than usual, including corporate bonds.

In a third move, the BoE said it was prepared to support further easing of liquidity pressures facing liability-driven investment funds through its regular Indexed Long Term Repo operations each Tuesday.

The sharp sell-off in British government bonds after Kwarteng’s “mini-budget” sparked a scramble for cash by Britain’s pension funds which had to post emergency collateral in LDIs.

In a move aimed at calming investors’ nerves, Kwarteng said on Monday he would bring forward his medium-term fiscal plan, including an explanation of how the tax cuts will be paid for, to Oct. 31 from Nov. 23, with independent budget forecasts to be published the same day.

The earlier date will allow the BoE to understand the government’s tax and spending plans before it announces its next interest rate decision on Nov. 3.

“You have lots of risk events coming,” Pooja Kumra, senior European rates strategist at TD Securities, said. “Markets will be looking at each and every auction.”

Yields on British 20- and 30-year gilts jumped by nearly 30 basis points on Monday, approaching their levels during the worst of the market rout triggered by Kwarteng’s mini-budget and adding to a recent run of daily increases.

Antoine Bouvet, a strategist at ING, said low take up of the BoE’s facility so far suggested that risk reduction by pension funds had been limited to date, and the central bank wanted to show it could deploy more support.

“The closer we get to Friday the more gilts will sell off,” Bouvet said. “The bigger picture here is that the functioning of the gilt market is still impaired.”

(USD 1 = 0.9035 pounds)

(Additional reporting by Tommy Wilkes, Harry Robertson, Muvija M and Sachin Ravikumar; Writing by William Schomberg; Editing by Catherine Evans)

 

NEW YORK, Oct 7 (Reuters) – The yield on the benchmark US 10-year Treasury note rose on Friday, after a solid report on the labor market largely extinguished any remaining hopes the Federal Reserve would alter its path of aggressive interest rate hikes as it seeks to combat inflation.

Nonfarm payrolls increased by 263,000 jobs last month, the Labor Department said in its closely watched employment report on Friday, above the 250,000 estimate of economists polled by Reuters. The unemployment rate fell to 3.5% from the 3.7% in the prior month.

Expectations the Fed will raise interest rates by 75 basis points (bps) increased following the data as fed funds futures implied as much as a 92% chance the policy rate will be increased to a 3.75% to 4% range at its November meeting, up from the 85% before the data release.

“Probably there were some people out there hoping for a weaker number that could set the stage for a Fed pivot. I’m sure they were disappointed,” said Sameer Samana, senior global market strategist at Wells Fargo Investment Institute in Charlotte, North Carolina.

“We’ve been through the ‘Fed’s going to pivot and pause’ thing enough times now that hopefully there’s not too many people betting on that given the Fed’s comment. You could argue that hope springs eternal but it was dashed once again.”

The yield on 10-year Treasury notes was up 6.4 basis points to 3.888%. The yield was on track for its tenth straight weekly rise, its longest such streak since 1994.

Treasury yields have been sensitive this week to any signs the labor market might be slowing in hopes it would give the US Federal Reserve room to pivot to a less hawkish policy stance and slow its rate of interest rate hikes after three straight increases of 75 basis points.

The yield on the 30-year Treasury bond US30YT=RR was up 5.1 basis points to 3.844%.

But Fed officials have been consistent in recent comments that the central bank will take aggressive measures in hiking interest rates to combat rising inflation, raising concerns among investors it could tilt the economy into a recession.

New York Federal Reserve President John Williams said on Friday the Fed has more work to do to lower inflation and rebalance economic activity in a more sustainable way, while Minneapolis Federal Reserve Bank President Neel Kashkari said “inflation is much too high.”

A closely watched part of the US Treasury yield curve measuring the gap between yields on two- and 10-year Treasury notes, seen as a reliable indicator of a recession when inverted, was at a negative 42.5 basis points, up from the negative 57.85 hit on September 22.

The two-year US Treasury yield, which typically moves in step with interest rate expectations, was up 6 basis points at 4.310%.

The breakeven rate on five-year US Treasury Inflation-Protected Securities (TIPS) was last at 2.423%, after closing at 2.352% on Thursday.

The 10-year TIPS breakeven rate was last at 2.273%, indicating the market sees inflation averaging 2.3% a year for the next decade.

(Reporting by Chuck Mikolajczak, additional reporting by Sinéad Carew; Editing by Nick Zieminski)