Euro zone bond yields fall further to lowest since February
LONDON, Aug 4 (Reuters) - Euro zone government bond yields dipped on Wednesday to February lows and the benchmark German yield hit -0.5% during a quiet session as traders awaited direction from the U.S. Treasury market ahead of key jobs data later in the week.
The 10-year German bond yield dropped to its lowest since mid-February as investors continue to push government borrowing costs down, betting the European Central Bank (ECB) will keep yields low to support economic recovery from the pandemic.
After a plunge in yields in July, borrowing costs have continued to fall across the euro zone so far in August.
The German 10-year yield fell 2 basis points to -0.5% . The French yield also fell 2 basis points to as low as -0.154%
"We are also expecting a flattening of the spread curve between France-Germany. Positioning for this is an attractive way to monetize the ECB's QE (quantitative easing and low rates environment, with significant asymmetry)," Mizuho strategists said.
The Italian 10-year yield slipped 2 basis points to 0.552% , its lowest level since mid-February, while Spain's 10-year yield weakened nearly 2 basis points to 0.222% .
The 30-year German yield, which sent the whole German yield curve into negative territory on Monday after disappointing U.S. economic data raised new concerns about the strength of recovery, was back below 0% at -0.02%
Citing ECB data released on Monday, analysts have noted that the average maturity of public sector debt the bank holds under its Pandemic Emergency Purchase Programme exceeds that of the universe of eligible bonds for the first time, putting downward pressure on longer-dated yields.
Purchasing managers index survey data for the euro zone in July and published on Wednesday came in slightly worse than expected but did not move as already published flash numbers last month showed significant strength in business activity.
"As seen from the manufacturing PMIs and U.S. manufacturing ISM earlier this week, global growth rates continue to look like they may have peaked in Q2 but remain at very robust levels," Deutsche Bank analysts said in a note.
U.S. non-farm payrolls data due on Friday is the more important upcoming data release - traders say euro zone markets may take their next cue from the Treasury bond market and its reaction to the numbers. Additional employment data and a Bank of England meeting on Thursday will also be closely watched.
(Reporting by Tommy Wilkes; Editing by Emelia Sithole-Matarise)
