German Bund yields hold at 1-1/2 year high before U.S. jobs data
LONDON, Sept 6
LONDON, Sept 6 (Reuters) - German 10-year yields held at their highest levels in 1-1/2 years on Friday before a U.S. jobs report that could cement the view that the Federal Reserve will decide to start trimming its bond purchases this month.
The yields rose above 2 percent for the first time since March 2012 on Thursday as an improving economic outlook pummeled top-rated global bonds as the European Central Bank signalled no imminent action to curb rising money market rates.
Core bonds were expected to remain under selling pressure with the U.S. non-farm payrolls report at 1230 GMT seen capping a week of forecast-beating data which could prompt the Fed to start tapering stimulus after its Sept. 17-18 policy meeting.
The world's biggest economy is expected to have added 180,000 non-farm jobs last month, keeping the unemployment rate steady at 7.4 percent.
"If the payrolls report is strong it could get very messy again. Presumably consensus has moved up after yesterday's data so maybe the risk is it comes below and we get a bit of a lift going into the weekend but the tone is pretty bearish," a trader said.
German 10-year yields were last at 2.04 percent, unchanged from late Thursday. The Bund future was 2 ticks up at 138.61, with the market pausing for breath after the contract fell more than a full point the previous day.
Some in the market had been looking to the ECB's policy meeting on Thursday for an indication of imminent action to back up the central bank's verbal efforts to counter upward pressure on money market rates from the Fed's policy shift.
Bond markets shrugged off ECB President Mario Draghi's affirmation that the bank would keep monetary policy accommodative for a long time. He also said risks to the economy remained to the downside.
"The ECB President did strike a dovish tone, but did not go far enough, and ultimately failed to dampen rate hike expectations," ING strategists said in a note.
Bunds were seen getting scant benefit from intensifying political tensions in Italy. An ally of Silvio Berlusconi said the former premier had prepared a message that could announce a decision to bring down the country's ruling coalition if lawmakers voted to boot him out of the Senate.
Berlusconi has raised the stakes for Prime Minister Enrico Letta's government ahead of a meeting on Monday of a special Senate committee that will vote on whether to strip him of his parliamentary seat after a conviction for tax fraud.
Italian 10-year yields were up 5 bps on the day at 4.57 percent with Spanish equivalents up 4 bps at 4.65 percent.
The yield gap between Spanish and Italian 10-year bonds shrank to its tightest in 1-1/2 years at 2 bps last week due to the risk that a vote on whether to expel Berlusconi could bring down the government in Rome.
It has widened again slightly this week as the market absorbed supply from Spain but analysts expect it to tighten into the coming week.