UPDATE Eurozone bond yields fall ahead of US jobs data
* Eurozone Periphery Government Bond Yields http://tmsnrt.rs/2ii2Bqr (Lede recast, adds analyst comment, background)
By Stefano Rebaudo
MILAN, July 2 (Reuters) – Eurozone government bond yields fell on Friday, following a move in Treasuries ahead of U.S. employment data, which could affect the discourse of the Federal Reserve on the economy.
More accommodating signals came from the European Central Bank (ECB), with President Christine Lagarde saying the eurozone economy was starting to rebound from a pandemic-induced slump, but that recovery remains fragile.
The ECB is considering going after banks that take too much risk through financial instruments, Andrea Enria, the ECB’s top supervisor, said on Friday.
Meanwhile, concerns about the impact on the global economy of a possible monetary tightening in China and the Delta variant of the coronavirus kept the sense of risk in abeyance.
The Shanghai Composite stock index fell 1.2%, amid speculation the Chinese central bank may start to tighten monetary policy and possible unease among foreign investors over President Xi Jinping’s warning to foreign powers in a speech to mark the centenary of his party.
“Persistent anxiety over the Delta variant, China, could become more and more a factor after weaker PMIs,” Commerzbank analysts told clients in a note.
The yield on German 10-year government bonds, the benchmark of the bloc, fell 3.5 basis points to -0.23%, its lowest level since mid-June and its largest drop since 26 may.
The Fed focused on the labor market recovery and inflation when deciding its policy, and most analysts believe it will be a few more months before these trajectories become more evident.
US employment data “must be far from consensus for it to affect the market. Otherwise, I think the current stabilization phase will continue,” said Massimiliano Maxia, senior fixed income specialist. at Allianz Global Investors.
“Overall, positioning appears to have become more balanced, but a downside surprise still looks set to support US Treasuries and Bunds,” added Commerzbank analysts.
Unicredit analysts didn’t see much room for US yields to fall after the data as they were “already trading at historically low levels.”
Emphasis was also placed on ECB speakers, with investors increasingly worried about the decline in the supply of bonds in the block in 2022, when the block’s purchase program expires. pandemic emergency (PEPP).
Eurozone government bonds and European Union supply “are expected to increase in 2022,” Citi analysts said. “To keep the annual net cash requirements unchanged, the Asset Purchase Program (APP) will need to be increased to EUR 55 billion per month after the end of the PEPP for EGBs and much more for the EU.”
(Report by Stefano Rebaudo, edited by Kirsten Donovan)