LONDON: Government bond yields in Europe and the United States rose in early trade on Friday after U.S. President Donald Trump said a trade deal with China may be reached within four weeks.
Reports that Britain may get the offer of a long extension period before Brexit and better-than-expected German industrial production numbers also helped perk up sentiment, pushing investors away from safe haven government bonds.
The world's two largest economies are engaged in intense negotiations to end a months-long trade war that has rattled global markets, but hopes of a resolution soared after both sides expressed optimism following talks in Beijing last week.
Ten-year U.S. Treasury yields were up about two basis points in early trade on Friday, hitting a two-week high of 2.538 percent, and was set for its biggest weekly rise this year.
The German 10-year Bund yield, the benchmark for the euro zone, rose into positive territory and was up 2 bps at 0.018 percent at one stage, also a two-week high. Other euro zone government bond yields rose by 1-3 bps.
"The main overnight news, which is positive if not very substantial, is around the U.S.-China trade deal," said Mizuho rates strategist Antoine Bouvet. "There's also some optimism surrounding Brexit, it looks like we are heading towards a long extension."
The chairman of European Union leaders Donald Tusk is likely to offer Britain a flexible extension of the date of the country's exit from the EU of up to one year, with the possibility of leaving sooner, a senior EU official said.
In addition, German industrial production numbers surprised to the upside, rising by 0.7 percent in February as mild weather led to increases in construction activity.
"A warm thank you to the construction sector," said Carsten Brzeski, an economist at ING, though he added that more generally speaking German industry remains an international reason for concern.
"While the headline number seems to provide some relief, the components show that activity in the manufacturing sector actually dropped by 0.2 percent month-on-month," he said in a note.
Later on Thursday, U.S. payroll data should provide some indication on the direction of the world's largest economy, and provide some clues on the rate hike path.
"I think NFPs (non-farm payrolls) are significant because we had a really poor reading in February. Other labour market indicators suggest there could indicate a rebound in March, which in turn suggest the labour market is tightening and the Fed could hike rates one more time this year," said Mizuho's Bouvet.
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