Eurozone government bonds fell before US data that economists forecast will show further strength in the American labor market, damping demand for the relative safety of fixed-income assets.
The yield on benchmark German 10-year bunds climbed from the lowest level since August. US employers added 201,000 jobs last month, according to the median forecast of economists in a Bloomberg survey. Some Federal Reserve policy makers have said they still see interest rates rising this year.
“Given the rally we had seen in recent days, profit-taking dominates currently,” said Daniel Lenz, lead market strategist at DZ Bank AG in Frankfurt. “Very much depends on the nonfarm reading where we close this afternoon. However, we would need really disappointing numbers for yields turning downward.”
Germany’s 10-year bund yields climbed three basis points, or 0.03 percentage point, to 0.57%. The yield fell to 0.53% on Thursday, the lowest since Aug. 24. The 1% security due in August 2025 dropped 0.29, or €2.90 per €1,000 ($1,116) face amount, to 104.155. Portuguese 10-year bond yields rose four basis points to 2.39%, having declined 26 basis points over the previous seven days.
Spread Narrows
Even as Spanish bonds fell Friday, the 10-year yields were still set for their biggest weekly decline in more than two months. That’s narrowed the spread over German bunds to the least since Aug. 11.
Spanish bonds have gained since Catalonia’s election on Sept. 27 was deemed to reduce the likelihood of independence for the region. Prime Minister Mariano Rajoy Friday set national elections for Dec. 20.
The yield on Spanish 10-year bonds increased four basis points to 1.86% Friday, paring this week’s decline to 18 basis points, still the most since July 17.
“When it comes to European government bonds, we remain bullish in the medium term, but today’s US figures may offer a pretext for profit-taking after the recent rally,” BNP Paribas SA strategists led by Laurence Mutkin, London-based global head of Group-of-10 rates strategy, wrote in a note. “However, any setback is likely to prove temporary and so offer an opportunity to enter longs.” A long position is a bet an asset’s price will appreciate.
