Euro zone government bond yields rise after BoE decision, US data

Markets still are pricing in less than a 50% chance of a 25-bp BoE rate cut in June. Germany's 10-year bond yield, the benchmark for the euro zone bloc, rose 3.5 basis points (bps) to 2.50%.

Euro zone government bond yields rose for a second consecutive day on Thursday, retracing some of the recent fall spurred by last week's weaker-than-expected U.S. nonfarm payrolls data.

The outcome of the Bank of England's (BoE) policy meeting pushed the bloc's borrowing costs slightly below their session highs, while U.S. Treasury yields rose after data on Thursday showed a rise in weekly U.S. jobless claims, making euro area yields edge higher. The

BoE said on Thursday its Monetary Policy Committee voted 7-2 to keep the central bank's key interest rate at a 16-year high of 5.25%, and Governor Andrew Bailey said he was "optimistic that things are moving in the right direction".

"This is a more dovish meeting than most expected, and it leaves a June cut very much on the table," said James Lynch, fixed income investment manager at Aegon Asset Management, who noted that there would be two rounds of inflation and employment data before the BoE's next policy decision on June 20. UK 10-year gilt yields were flat while the 2-year dropped 4 bps to 4.27%, after hitting a fresh one-month low at 4.26%. Markets still are pricing in less than a 50% chance of a 25-bp BoE rate cut in June.

Germany's 10-year bond yield, the benchmark for the euro zone bloc, rose 3.5 basis points (bps) to 2.50%. It was up 4 bps before the BoE. The German 10-year yield had fallen for four straight sessions until Wednesday. The release last Friday of U.S. data showing weaker-than-expected job growth in April has boosted expectations that central banks in developed economies will cut interest rates.

"I do not think that today's sell-off is related to any specific events or news," said Emmanouil Karimalis, European rates strategist at UBS. "In my view, it is more of a correction, following the strong rally after the NFPs (nonfarm payrolls)." Sweden's Riksbank cut rates on Wednesday in a sign that Europe's central banks are prepared to diverge from the U.S. Federal Reserve, which is expected to hold rates steady until September or November.

Traders expect the European Central Bank to lower rates by 70 bps in 2024, starting in June. Italy's 10-year yield was 4 bps higher at 3.84%, and the gap between Italian and German yields widened 2 bps to 135.5 bps.

On Wednesday, Austrian central bank Governor Robert Holzmann, who typically favours higher rates, said he sees "no reason ... to cut key interest rates too quickly, too strongly". He added that the ECB would be influenced by the Fed, given the importance of the dollar in the global financial system.

Data on Thursday showed that China's exports and imports returned to growth in April after contracting in the previous month. In the first quarter, the U.S. overtook China as Germany's most important trading partner, according to Reuters' calculations.

(This story has not been edited by Devdiscourse staff and is auto-generated from a syndicated feed.)