European bond markets seek direction ahead of U.S. jobs report

509
2

Aug 5 - Euro zone bond yields sought direction in quiet trade on Thursday ahead of a key U.S. jobs data reading due on Friday.

Government bond yields on both sides of the Atlantic Ocean have continued falling in the first week of the month after a plunge in July that gave them their best performances since the beginning of the pandemic and earlier. Bond yields move inversely to prices.

In recent sessions, we have moved in tandem with U.S. Treasury yields as a potential cut to Treasury issuance later in the year and lower-than expected U.S. government employment and manufacturing growth data helped help keep U.S. yields near lows.

With little data to move euro area markets at this time of year, Germany's 10-year yield, the benchmark for the bloc, was unchanged on Thursday by 0703 GMT after dipping below - 0.50%, the European Central Bank's policy rate, for the first time since January on Wednesday.

Bunds look set to remain solid even though markets should continue to struggle at the -0,50% level in 10-year yields, as signalled by yesterday's late U.S. driven sell-off, said Michael Leister, head of interest rates strategy at Commerzbank.

Data on Thursday showed that German industrial orders rose more than expected in June after a loss in May, but material shortages continue to weigh on production. It however had a small impact on bond markets.

Focus across the bond markets was on the Bank of England policy announcement later on Thursday, where it is expected to keep support for Britain's economy running at full speed. However, the central bank might also start to lay out its plan for how it would eventually reverse its stimulus.

At auctions France is expected to raise up to 7.5 billion euros from the reopening of bonds due 2031, 2032 and 2034. Spain will raise up to 5 billion euros from bonds due 2024, 2026 and 2031 and up to 750 million euros from inflation-linked bond due 2030.

Bond markets are eyeing U.S. non-farm payroll data due on Friday that could be the next catalyst to move U.S. Treasuries, which euro area government bonds will likely follow.