Bunds hit record high

The German Bund future rallied to record highs after data showed US job growth ground to a halt in August, increasing the risk that the world's largest economy could slip back into recession. The risk of fiscal slippage in Greece and Italy had already supported safe-haven German government bonds earlier in the day, at the expense of peripheral debt, but concerns over the US economy helped 10-year German bond yields reach historic lows.
"Based on these figures, a (US) recession is clearly a greater possibility than the market had felt in the last few weeks," Lena Komileva of Brown Brothers Harriman said. "We are clearly in a 2009 kind of scenario where companies and consumers need to start believing again that the worst is behind and this can only be achieved through a combined fiscal and monetary package - monetary to stabilise financial markets and fiscal to actually spur job creation in the real economy."
Data showed the US economy did not generate any jobs last month, falling short of market expectations for the creation of 75,000 jobs. The German Bund future hit a session high at 136.97, up 167 ticks on the day, and 10-year German bond yields fell to a record low of 1.966 percent. It was unclear how far lower yields could go from current levels, analysts said.
The greater the risk of a US recession, the greater the risk of a third round of quantitative easing from the Federal Reserve - a development which would likely be supportive for stock markets. Against this backdrop, US President Barack Obama's address to Congress next week to unveil new jobs proposals will be key. Also underpinning the eurozone bond market, there seemed to be no end in sight for regional woes.
Yields and Italian and Spanish bonds rose even as the European Central Bank bought a small amount of those bonds in the secondary market. Ten-year Italian bond yields rose 13.3 basis points to 5.29 percent and the Spanish equivalent were up 7.5 basis points to 5.14 percent. The 10-year Greek/German yield spread, hit a euro era-high around 1,667 bps as uncertainty over a second Greek bailout put the country back in the spotlight.