Euro zone bond yields ease as focus turns to US payrolls report

Euro zone government bond yields dipped on Friday, stabilising at the end to a volatile week, ahead of potentially disruptive U.S. data on monthly employment where a weak report could see Bunds lag Treasuries. Germany's 10-year yield, the benchmark for euro zone bonds, was down 2 basis points at 2.705%, cooling off from the five-month peak of 2.80% touched earlier in the week.

Similarly, the 30-year German yield was also down 2 bps at 3.324%, extending its decline after hitting a 14-year high of 3.434% on Wednesday, amidst a global selloff in long-duration government debt due to worries over the sustainability of public finances in developed economies. Other regional bond yields, like those in France and Italy, were trading in line with their German counterparts.

Unstable politics and reduced demand from investors like pension funds for long-dated debt have also weighed on long-duration bonds this week, with markets now awaiting the outcome of a no-confidence vote in France on September 8. In the near-term, weaker U.S. labour market indicators have helped cement expectations of a rate cut by the Federal Reserve this month, pulling long-dated yields below this week's multi-year highs.

Those expectations could be tested later in the day, if non-farm payrolls increase by more than expected. Economists polled by Reuters expect a rise of 75,000 jobs in August. The rate-sensitive 2-year U.S. Treasury yield was last a touch lower at 3.58%, lingering near its lowest level since May.

However, a payrolls report that comes in well below expectations, and reinforces the need for a Fed rate cut, could trigger a larger rally in Treasury prices. That could push yields down faster than those on German debt, which are factoring in almost no chance of another rate cut in the euro zone for the coming months.

(This story has not been edited by Devdiscourse staff and is auto-generated from a syndicated feed.)