Euro Zone Bond Yields Drop Amid Disappointing U.S. Economic Data

Euro zone government bond yields fell on Friday, backing down from multi-week highs as the optimism sparked by eased Sino-U.S. trade tensions waned, and disappointing U.S. economic data hit the markets. German 10-year bond yields, considered the benchmark for the euro zone, fell by 4 basis points to 2.58%, marking a retreat but still pointing towards a fourth consecutive weekly rise as investors moved away from debt.

The shifts followed trade agreements announced by the United States with Britain and China earlier this month, which provided relief from recession fears spurred by trade wars. However, soft U.S. economic data released on Thursday suggested a slowdown, prompting traders to increase bets on Federal Reserve interest rate cuts, pushing U.S. 10-year Treasury yields 7 bps lower.

The future trajectory of U.S. economic data, especially hard data like upcoming jobless claims and payrolls, will be crucial, said James Ringer of Schroders. Meanwhile, ECB policymaker Martins Kazaks noted potential bottoming out of rates amid prevailing uncertainty. The focus now shifts to growth fundamentals and inflation's impact on ECB policies, away from politics.

(With inputs from agencies.)