Euro zone bond yields edge higher ahead of U.S. jobs data

Italy's 10-year yield rose 3 bps on Friday to 4.453% and was on track for its biggest weekly gain since mid-September, having risen 29 bps since Monday. The Fed hiked interest rates by 75 bps for the fourth meeting running on Wednesday and said it was far from done.

Euro zone government bond yields reversed course and rose on Friday, putting them on track for another strong weekly gain, as investors awaited the latest U.S. employment data. Global yields have risen sharply this week after the U.S. Federal Reserve and the European Central Bank (ECB) made clear that the fight against inflation is far from over. Another record-high euro zone inflation print on Monday added to investors' fears that interest rates will keep marching higher.

Germany's 10-year yield, the benchmark for borrowing costs in the euro zone, slipped earlier in the session but was last up 3 basis points (bps) to 2.281% on Friday. It was 20 bps higher for the week, meaning it has risen for 13 of the last 14 weeks. The German 2-year yield was 6 bps higher at 2.149%, not far off a 14-year high of 2.22% touched in October. Yields move inversely to prices.

"We have to expect in the next few weeks the volatility to remain high," said Sebastiano Chiodino, head of fixed income at Generali Insurance Asset Management. "We know central banks keep being data dependent, and a data dependent central bank will tend to ignite volatility."

Eagerly awaited data out at 1230 GMT is expected to show the U.S. jobs market added 200,000 jobs in October, down from 263,000 in September. Yet a stronger-than-expected reading would add to the impetus for the Fed to keep hiking interest rates. "How long the Fed will continue to remain on the hawkish side and continue to tighten its monetary policy is very important because it will keep the euro under pressure," said Valentine Ainouz, head of global fixed income strategy at Amundi Institute.

ECB President Christine Lagarde said on Friday

that the central bank is ready to tighten monetary policy faster if it sees signs of inflation becoming more persistent. She said inflation is still "way too high" in a Latvian television interview on Thursday. Italy's 10-year yield rose 3 bps on Friday to 4.453% and was on track for its biggest weekly gain since mid-September, having risen 29 bps since Monday.

The Fed hiked interest rates by 75 bps for the fourth meeting running on Wednesday and said it was far from done. It came after the ECB last week also hiked by 75 bps, days before preliminary data showed euro zone inflation hit a record high of 10.7% in October.

The gap between the German and the Italian 10-year yield was roughly flat at 216 bps. The Bank of England, while raising rates by 75 bps on Thursday, struck a different tone to the Fed by signalling that future rate rises would be lower than traders anticipate.