Euro Zone Bonds Respond to Surprising PMI Data Ahead of Fed Symposium

Euro zone bond yields rose as markets reacted to strong PMIs, with German 10-year yields hitting 2.74%. The upcoming Federal Reserve symposium in Jackson Hole adds further anticipation. UK businesses also showed unexpected growth, giving finance minister Rachel Reeves some relief amidst future challenges.

On Thursday, euro zone bond yields experienced a slight increase as investors absorbed unexpectedly strong euro zone Purchasing Managers' Index (PMI) data. At 11:06 GMT, German 10-year yields saw an increment of nearly 3 basis points, reaching 2.74%, and the 2-year yields, sensitive to rate changes, rose by 4 basis points to 1.97%.

Peter Schaffrik, the head strategist at RBC for European macroeconomics and rates, highlighted a noteworthy shift in market activity, driven by robust PMI results from the euro area and the UK, notably affecting the short end of the yield curve. Notably, new orders for euro zone businesses surged for the first time since May 2024, fueling economic activity at an unprecedented pace since the past 15 months. The influence of France and Germany earlier in the week contributed to the uptick in yields.

The UK mirrored this trend, with PMIs revealing stronger than expected growth, marking a rebound in the services sector and leading to UK 10-year gilts climbing 4 basis points to 4.71%. British public borrowing figures aligned with government forecasts, offering finance minister Rachel Reeves temporary relief. Attention now shifts to Federal Reserve Chair Jerome Powell's speech on Friday, pivotal for traders evaluating a potential September rate cut by the U.S. central bank.

(With inputs from agencies.)