(Updates after U.S. jobs data)
By Harry Robertson and Stefano Rebaudo
Aug 2 (Reuters) - German government bond yields tumbled
on Friday to their lowest level in around six months as
investors snapped up sovereign debt after weak U.S. economic
data raised fears for global growth and caused stocks to fall
sharply.
Data on Friday showed the U.S. economy added 114,000 jobs in
July, down from 179,000 in June and well below the 175,000
economists expected. The unemployment rate rose to 4.3%, from
4.1%, raising market expectations for Federal Reserve interest
rate cuts this year.
Germany's 10-year bond yield, the benchmark for
the euro zone, extended a decline after the jobs data and was
last down 10 basis points to 2.151%, the lowest since February.
The yield, which moves inversely to the price, was set to
end the week 25 bps lower, the biggest fall since mid-June.
Tensions in the Middle East and Thursday's Bank of England
interest rate cut also burnished the appeal of bonds, although
the debt of euro zone countries that are seen as riskier
investments, such as Italy, fared less well.
"We are seeing strong moves across major markets," said
Emmanouil Karimalis, macro rates strategist at UBS.
"It is a combination of several factors: the BoE cut has set
a more bullish tone this week, while markets are also increasing
their expectations for a Federal Reserve cut," he said.
"The weakness in the stock market, escalating geopolitical
tensions in the Middle East, and a slowdown in European
government bond supply in August are all supportive factors for
European bonds."
Germany's two-year bond yield, which is sensitive
to ECB rate expectations, was last down 12 bps at 2.345%, its
lowest level since January.
Data on Thursday showed U.S. jobless claims rose more than
expected last week to 249,000, the highest since August 2023.
In addition, a measure of U.S. manufacturing activity
dropped to an eight-month low in July amid a slump in new
orders.
Stocks dropped around the world on Friday, with a broad
pan-European index down around 2.2% and U.S. futures
down 1.8%.
Concerns about the global economy led riskier government
bonds to underperform their peers, with the Italian and French
yield spreads versus German bonds widening respectively to 146
basis points (bps), the highest in almost a month,
and to 78 bps, the highest since last month's
French election.
Italy's 10-year bond yield fell 3 bps to 3.612% while
France's was down 5 bps at 2.944%.
Money markets priced in almost 70 bps of further European
Central Bank rate cuts in 2024, from about 50 bps a week ago
.