LONDON: Yields on most euro zone bonds fell on Friday as the market's focus shifted from Greek tensions with its EU lenders to US jobs data that investors hope will provide clues as to when the Federal Reserve might hike interest rates.
Greek bonds continued to underperform the rest of the market though the selloff in the country's assets was modest after the European Central Bank let the country's central bank offer its banks enough emergency funds to stem a major outflow.
The US January payrolls report is widely forecast to show the world's biggest economy created fewer jobs in January than in December with the jobless rate expected to remain at a 6-1/2-year low of 5.6 percent. German 10-year yields, the benchmark for euro zone borrowing costs, were 2 basis points down at 0.34 percent. Other top-rated euro zone bond yields were 1-2 bps lower.
"It's the payrolls that are dominating today and the market seems to be positioning for a somewhat weaker payroll report which could mean a delay in Fed policy expectations," said Piet Lammens, a strategist at KBC Securities.
"We're positioned more on the other side as we expect it to confirm our view of a gradual and timely increase in payrolls which could reinforce suggestions by the Fed that they want to normalise rate policy in mid-2015."
On the euro zone's periphery, Italian and Spanish 10-year yields were a touch lower at 1.55 percent and 1.46 percent respectively.
Though they have been largely insulated from Greece's debt problems by the European Central Bank's quantitative easing programme, their yields have bounced off record lows hit in the past week on uneasiness over the standoff between Athens and its EU lenders.
Greek 10-year yields were 35 bps higher on the day at 10.34 percent while three- and five-year yields were 40-81 bps up at 17.76 percent and 13.97 percent respectively.
The sharp selloff in Greek markets has somewhat lost steam after the ECB allowed the Greek central bank on Thursday to offer the country's banks emergency funding of up to 60 billion euros, having earlier said it would stop accepting Greek bonds in return for funding.
But trade remains volatile. Greek Prime Minister Alexis Tsipras and his finance minister, Yanis Varoufakis, have been crisscrossing Europe to seek support from partners for their plan to win debt relief and end austerity policies.
But they have so far received little other than warnings to avoid reneging on commitments under the country's existing bailout programme.
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