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Euro zone bond yields dip ahead of U.S. jobs data

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The euro sign is photographed in front of the former head quarter of the European Central Bank in Frankfurt, Germany, April 9, 2019. Picture is taken on slow shutter speed while the camera was moved. REUTERS/Kai Pfaffenbach

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AMSTERDAM, July 8 (Reuters) – Euro zone bond yields dipped on Friday, with markets seeking direction ahead of U.S. jobs data.

Bond markets swung wildly this week, with economic data and central bank speak continuing to drive a tussle between inflation and recession fears.

In a sign of that volatility, Germany’s 10-year yield, the benchmark for the euro area, was set to end the week 5 basis points higher despite several daily moves that exceeded 10 basis points.

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The jobs data due at 1230 GMT is expected to show the U.S. economy added slightly less jobs in June than in May and that the unemployment rate is expected to remain steady. It will be scrutinized for any signs that the jobs market is slowing, which would signal an easing of inflationary pressures.

By 0744 GMT, Germany’s 10-year yield, was down 3 basis points to 1.26%. Moves were relatively modest compared to its 13 bps rise on Thursday, the biggest daily move since March 2020.

“Looking through the fog of volatility, the overall picture remains one of peaks in both nominal and real bond yields,” said Arne Petimezas, senior analyst at AFS Group.

Germany’s 10-year yield had risen as high as 1.92% in mid-June before recession fears grew in focus.

Petimezas said the closely-watched two-year/10-year yield curve in the United States remains inverted as U.S. Federal Reserve officials have not shown signs of dialling back hawkish rhetoric despite intensifying recession fears.

Italy’s 10-year yield dropped 8 bps to 3.29%, tightening the closely-watched spread over Germany to 203 bps.

It had widened for part of the session on Thursday after a Bloomberg News report suggested that policymakers are not displaying certainty that the ECB’s tool to fight an “unwarranted” divergence in borrowing costs will be ready at its policy meeting on July 21.

Traders have also increased their bets on how much the European Central Bank will raise this year, now pricing in just over 140 bps of hikes by December, compared to 135 on Thursday.

Markets are also back to pricing in a full probability of a 75 bps hike by September, and an additional, nearly 25% chance of a 100 bps hike at that meeting.

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Reporting by Yoruk Bahceli; Editing by Angus MacSwan

Our Standards: The Thomson Reuters Trust Principles.


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