Euro area yields tick up ahead of critical U.S. jobs data

Aug 6 (Reuters) – Euro zone bond yields tmsnrt.rs/2ii2Bqr ticked up on Friday with all eyes on a U.S. jobs report later in the session that is expected to set the tone for global markets.

Fears around the coronavirus Delta variant, concern that economic recovery is peaking, investors reversing bets against safe-haven bonds, and an accommodative tone among central banks all pushed yields sharply lower across the world in July.

However, many investors say the fall in yields is unwarranted given the economic recovery ahead and are betting that U.S. 10-year yields should rebound to near 2% by year-end from around 1.25% currently.

The jobs data is seen as a catalyst that may help yields eventually rise, a move that would likely be reflected in the euro area.

A Reuters poll expects U.S. non-farm payrolls to rise to 870,000 from 850,000 in June, though estimates ranged from 350,000 to 1.6 million, underscoring the uncertainty in gauging the data.

And while ADP data indicated the smallest private payrolls gain in five months, Institute for Supply Management surveys showed a rebound in manufacturing and services employment, compounding the uncertainty.

“The jobs data will be a clear marker in the sand to clarify how the labour market is looking and we need a few of these markers to build confidence that the economy is recovering,” said Grace Peters, EMEA head of investment strategy at J.P. Morgan Private Bank.

Germany’s 10-year yield, the benchmark for the euro area, was up less than a basis point by 0729 GMT to -0.489%, above the January low of -0.524% breached on Thursday, when Germany’s benchmark yield fell further below the European Central Bank’s -0.50% deposit rate.

But it was set for its sixth straight week of falls, down another 3 basis points this week.

That sets German bond prices, which move inversely with yields, for their biggest six-week winning streak since early March 2020, when financial markets panicked as the coronavirus spread globally.

The ECB adopted a symmetric 2% inflation target in July, which will allow for temporary overshoots, and pledged to keep rates lower for longer in order to meet the target.

That helped “real” yields on German inflation-linked bonds fall further. Those bonds outperformed globally in July and sentiment around ECB support has continued to keep bond yields subdued in August.

Italian 10-year yields were a basis point higher, keeping the closely watched gap with German equivalents at 102 bps, down from 108 bps at the start of the week.

German industrial output unexpectedly fell again in June, suggesting the recovery is slowing, but this had little impact on bond markets.

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