LONDON: Bond markets in the euro area were headed for their worst week in months on Friday, with fears about tighter central bank monetary policy and another dose of strong US economic data pushing borrowing costs to new highs.
Benchmark 10-year government bond yields in Germany rose to their highest in 4 1/2 months and along with their peers in France and the Netherlands were set for their biggest weekly rise since at least July.
Spanish yields also hit their highest since May, catching up with a sell-off that began in the United States on Wednesday and rippled across the world.
Solid US economic data and hawkish comments from US Federal Reserve officials sparked the sell-off in US Treasuries - 10-year bond yields are up 15 bps this week and set for the biggest weekly rise in eight months.
US non-farm payrolls data due later on Friday are the next test for markets anxious that the Fed will step up the pace of its rate hikes.
Economists polled by Reuters forecast the US economy created 185,000 new jobs in September versus 201,000 in August.
In Europe, an unwinding of European Central Bank stimulus has added to the selling pressure -- October brings a halving of monthly bond purchases to 15 billion euros ($17.26 billion).
In Germany, data on Friday showed industrial orders rebounded in August, rising more than expected.
"It's all related to central banks, (Fed chief Jerome)Powell is hawkish, and don't forget this is the first week of October where ECB purchases have fallen and the Fed's balance sheet reduction has accelerated," said BBVA strategist Jaime Costero Denche.
Most 10-year bond yields in the euro zone were 1 to 2 basis points higher on the day.
Spain's 10-year bond yield rose to its highest since late May at around 1.59 percent. Portuguese yields briefly touched their highest since mid-June.
German 10-year yields touched a 4 1/2-month high at 0.57 percent before pulling back slightly to 0.55 percent. They are up 7 bps this week and poised for their biggest weekly jump since July.
"The really interesting story is what is happening in world bond markets right now, with the global economic environment improving," said Mizuho rates strategist Antoine Bouvet. "QT (quantitative tightening) is reaching full speed."
Shorter-dated Italian bond yields rose 16 to 17 bps . Analysts said while there was no fresh driver behind the selloff, caution was returning to the market after a rebound in prices earlier this week.
Still, comments from Italy's Deputy Prime Minister Matteo Salvini on Friday highlighted tension between the new government in Rome and the European Union over Italy's budget plans.
Salvini on Friday accused top European Commissioners of wrecking Europe.
ECB President Mario Draghi met Italian President Sergio Mattarella on Monday to discuss Italy's proposed 2019 budget, which is unnerving markets, a political source told Reuters on Friday.
Comments
Comments are closed for this article.