Euro zone bond yields edged upwards on Thursday after survey data showed the bloc’s private sector fared better than expected in August, although a separate measure of wage pressures eased.
Germany’s 10-year bond yield, the benchmark for the euro zone, was last up 2 basis points (bps) at 2.222 per cent, roughly where it has traded since recovering from a drop at the start of August. Yields move inversely to prices.
Purchasing managers’ index (PMI) survey data showed euro zone business activity was surprisingly strong in August, with services a bright spot.
Germany remained mired in a downturn, however; its PMI showed business activity contracted in August for a second consecutive month and by more than expected.
Separate figures showed growth in negotiated wages in the euro zone slowed sharply to 3.55 per cent year-on-year in the second quarter, down from a record high of 4.74 per cent in the first quarter.
“The PMI figures are overshadowing these wage numbers,” said Jussi Hiljanen, head of European rates strategy, SEB. “The service sector is still strong and service sector inflation is one of the focal points of the ECB (European Central Bank).”
However, Hiljanen said he was surprised by the pick-up in yields after the PMI data, which was skewed by the Olympics in France.
Italy’s 10-year yield was roughly flat at 3.572 per cent, and the gap between Italian and German bond yields fell 2 bps to 135 bps.
Germany’s two-year bond yield, which is more sensitive to ECB rate expectations, was up 1 bp at 2.376 per cent.
Money market pricing showed traders on Thursday were expecting 65 bps of further ECB rate cuts this year, little changed from the day before.
Bond yields tumbled at the start of August after data showed the US unemployment rate unexpectedly rose in July, raising concerns about the world’s biggest economy.
They have since perked back up as data has suggested the economy remains solid, although US yields closed lower overnight after the release of data showing jobs growth in the country was weaker than previously thought. US weekly jobless claims data is due later on Thursday.
