Euro zone bond yields rise as U.S. jobs, ECB double act eyed

Thu Jul 3, 2014 6:19am EDT

* Market ratchets up U.S. jobs data bets after strong ADP
report
    * Rise in euro zone bond yields tempered ahead of ECB
decision
    * Spain sells 4.5 bln euros of bonds; France raises 8.5 bln

 (Updates with Spanish, French bond sales, adds fresh quotes)
    By Emelia Sithole-Matarise
    LONDON, July 3 (Reuters) - Euro zone bond yields mostly
pushed higher on Thursday as investors positioned for what may
be a strong non-farm payrolls report after robust private sector
data pointed to a strong recovery in the U.S. labour market.
    Economists expect U.S. employers to have added 212,000 jobs
in June, down slightly from 217,000 in May, according to a
Reuters poll. The data will be released on Thursday at 1230 GMT
because Friday is a holiday in the United States. 
    Some market participants were betting on a higher figure
after Wednesday's ADP National Employment Report showed
companies hired 281,000 workers in June, well above the 200,000
forecast. 
    German 10-year yields, the benchmark for the
euro zone, rose 1.5 basis points to 1.30 percent, extending
Wednesday's rebound from near historic lows. Other euro zone
bond yields were 1-3 bps higher, though traders said activity
was tempered by caution ahead of the European Central Bank's
monetary policy decision later in the day. 
    "Clearly after yesterday's ADP report the market sold off
and yields pushed higher and this persists this morning and the
market is gradually expecting a stronger NFP," said Patrick
Jacq, a bond strategist at BNP Paribas in Paris.
    "We have the ECB press conference at the same time ... so
there could be more volatility in the market than a clear bias."
    The U.S. data will be released just as ECB President Mario
Draghi starts his post-meeting press conference.
    
    READING DRAGHI
    The ECB is expected to hold off on further monetary stimulus
measures after cutting interest rates to record lows last month
and announcing 400 billion euros of new loans for banks. 
    Markets will be looking for details of the four-year loan
scheme, which will be contingent on banks lending to companies
and households rather than buying government bonds as they
mostly did with similar crisis loans offered in 2011-2012.
    Investors will also parse Draghi's comments to see how far
back policymakers have pushed the possibility of asset purchases
to support the euro zone's anaemic economic recovery.
    "If his words are interpreted by the market as suggesting
that QE is further away than the market is expecting, it could
have some impact," said Elwin de Groot, senior market economist
at Rabobank.
    Among peripheral euro zone bonds, Spanish yields were a
touch higher as investors absorbed up to 4.5
billion euros of bonds, including new five-year paper.
    While demand for the Spanish bonds was less stellar than at
auctions so far this year, analysts said this signalled no
weakening in investor demand for peripheral bonds which have
driven their borrowing costs to record lows.
    "Certainly, the backdrop of key data, event risk in the form
of U.S. labour data and the ECB policy announcement is less than
conducive for a strong uptake this morning," Rabobank
strategists said in a note. 
    "As indicated by yesterday's strongly oversubscribed 10-year
dollar syndication out of Portugal, though, we would not take
this as any indication peripheral debt markets are beginning to
lose their lustre." 
    Portugal raised $4.5 billion on Wednesday in its first
dollar bond sale since March 2010 as it sought to build up cash
buffers to fund near-term debt repayments ahead of schedule.
 

 (Editing by Catherine Evans)
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