Euro zone bond yields soar after blockbuster U.S. jobs figures

Euro zone bond yields leapt on Friday after data showed that the U.S. labour market beat expectations in December, extending their rise and putting them on track for the biggest weekly jump in months.

Euro zone bond yields leapt on Friday after data showed that the U.S. labour market beat expectations in December, extending their rise and putting them on track for the biggest weekly jump in months. Figures showed that U.S. non-farm payrolls rose by 216,000 in December, up from 173,000 in November. That was well above economists' forecast for 170,000 and shows that the world's biggest economy remains strong.

Bond yields - which had already been trading higher - rose across the board as investors scaled back their bets on how quickly and how early the Federal Reserve and other central banks will cut interest rates. Yields move inversely to prices. Germany's 10-year bond yield was last up 10 basis points (bps) at 2.203%, having traded roughly 7 bps higher at 2.17% before the data was released.

It was on track for its biggest weekly rise since early July at 17 bps. The U.S. 10-year yield was up 8 bps at 4.0685%, around a three-week high.

Bond yields tumbled in November and December to multi-month lows as a slowdown in U.S. and European inflation, and a softer tone from central banks, drove expectations for big rate cuts in 2024. But the bond rally has stalled early this year as markets have reined in those hopes and some economic and inflation data has remained strong.

Euro zone inflation rose to 2.9% year-on-year last month, from 2.4% in November, data showed on Friday. That eased financial markets pressure on the European Central Bank to start cutting rates, although it was slightly lower than the 3% rate expected. Italian and French 10-year bond yields were both up by around 10 bps at 3.903% and 2.745% respectively .

Germany's two-year bond yield, which is sensitive to ECB rate expectations, was last up 10 bps at 2.615%. December 2024 ECB euro short-term rate (ESTR) forwards were last at 2.47% - implying 143 bps of cuts in the ECB deposit facility rate this year - from 2.22% early on Thursday that had implied 168 bps of cuts. The current ECB deposit rate is 4%.