LONDON: Euro zone bond yields edged higher on Friday as investors waited for the latest batch of US employment figures, seen as crucial to convincing the Federal Reserve to tighten monetary policy.
In its statement last week, the US central bank stressed that a rise in interest rates would be data-dependent, putting extra onus on Friday's non-farm payrolls numbers due at 1330 GMT.
While the European Central Bank affirmed its accommodative approach on Thursday, expanding its balance sheet and hinting at additional unconventional measures, strategists remain unconvinced it could fully cushion bonds from a US hike.
"We do believe that we will keep having this correlation between US and euro zone yields, and we should have some kind of spillover effects," said Cyril Regnat, fixed income strategist at Natixis.
German 10-year yields rose two basis points to 0.84 percent, mirroring a similar move in US Treasuries, which crept up the same amount to 2.40 percent in European trading.
Meanwhile, the rally in Spanish and Italian bonds that followed Thursday's dovish ECB meeting reversed, with 10-year yields rising 2 bps to 2.16 and 2.38 percent, respectively.
Bucking the trend, Greek 10-year yields dipped 8 bps to 7.95 percent after euro zone finance ministers backed a precautionary credit line to replace the country's bailout programme, which it is exiting early at the end of the year.
Strategists were split over the scheme, designed to balance the need to reassure investors with the demands of domestic Greek politics.
Some welcomed the fact that Greece would still have financial support, giving it a backstop if it struggles to raise money on the market next year.
RBC analysts said that the credit line from the European Stability Mechanism would satisfy one key pre-condition for direct support from the ECB under its outright monetary transactions scheme.
Others said euro zone demands for the IMF to remain involved in the country's supervision could backfire.
The Greek public holds the IMF responsible for the harsh austerity imposed on it over the last four years. "Given the other options this is probably one of the worst ones from a political perspective," said RBS rates strategist Michael Michaelides.
"The IMF stays there, and in some ways it's even worse because you have to raise money from the markets but you don't get any IMF financing." Portugal was the only other euro zone member to see yields fall on Friday, as some strategists predicted S&P would lift its outlook on the country's BB rating after the markets close.
Ten-year yields were down 1 basis point at 3.42 percent.
JOBS RISE EXPECTED
US non-farm payrolls are expected to show a rise of 231,000 jobs last month after a 248,000 increase in September, according to a Reuters survey of economists.
The jobless rate is seen steady at a six-year low of 5.9 percent.
Data on Thursday showed the number of Americans filing new claims for unemployment benefits fell more than expected.
Claims have now been below the 300,000 threshold for eight straight weeks, suggesting that employment growth was gaining momentum.
Loretta Mester, head of the Cleveland Fed, said on Thursday that the United States will likely raise interest rates next year since inflation, while a bit low now, remains stable and should rise to target by the end of 2016. Fed chair Janet Yellen speaks later on Friday at an international conference on central banking in Paris.
The ECB's Jens Weidmann and Benoit Coeure also attend, as well as the IMF's Christine Lagarde.
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