LONDON: German bond yields were set on Friday for their biggest weekly rise in almost three months, ending their longest run of falls since the euro zone debt crisis as risk appetite bounced back after the shock of Britain's vote to leave the European Union.
Talk of further stimulus in Japan, stronger-than-expected economic data in China on Friday, signs of progress in tackling a banking crisis in Italy and a quicker-than-anticipated appointment of a new prime minister in Britain have all lifted sentiment in global markets this week.
With world stock markets trading at an eight-month high and sterling, sent reeling by Brexit, on track for its biggest weekly gains since 2009, investors have finally ventured out of the safety of bond markets.
Germany's benchmark 10-year Bund yield traded at minus 0.09 percent, up marginally on the day and within sight of a two-week high hit on Thursday after the Bank of England surprised markets by keeping interest rates on hold.
Bund yields were on track to end the day with a rise of about 9 bps -- their biggest weekly rise since late April. That ends the longest run of weekly falls chalked up since the euro zone debt crisis as the aftermath of Brexit bolstered demand for top-rated debt. When a bond's yield rises, its price falls.
French and Dutch yields have retreated about 8 bps from record lows hit at the start of the week when yields in the Netherlands briefly turned negative.
Other safe-haven bonds were also on the back foot, with Japanese 10-year bond yields rising to a two-week high and US Treasury yields touching their highest level in three weeks.
"We've had a big sell-off across safe-haven fixed income markets and that's partly because we've had such a strong rally, but also because there's been some genuinely positive news from other parts of the world this week," said Owen Callan, an analyst at Cantor Fitzgerald.
Even after this week's retreat in bond markets, German 10-year yields remain almost 20 bps below levels traded before Britain's unexpected referendum result.
There was little reaction in fixed income markets to an attack in the French city of Nice late on Thursday that killed at least 84 people, with investors seen reluctant to push ultra-low yields even lower.
European stock markets however fell on Friday, with the shares of travel and leisure companies dropping.
As sentiment towards risk in general improves, attention was also turning back to the outlook for US monetary policy.
Any signs of strength in US inflation data due later in the day could renew talk of a rate hike from the Federal Reserve in the months ahead, analysts said.
"There is a bit of a danger for bond markets from stronger-than-expected US data," said KBC strategist Piet Lammens. "Bunds are ripe for a more severe correction."
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