Germany's 10-year yield hits one-week high ahead of data

Markets have been having to balance risk aversion from rising coronavirus cases with optimism from the bounce-back in economic data in the past few sessions. German retail sales rose sharply in May, by 13.9% compared to a Reuters forecast of 3.9%, reflecting a rebound in private consumption as Germany lifted its coronavirus lockdown.

Germany's 10-year yield rose to a one-week high on Wednesday, as the focus on both sides of the Atlantic was on data releases that may support some economic optimism, potentially hurting safe-haven bonds. Markets have been having to balance risk aversion from rising coronavirus cases with optimism from the bounce-back in economic data in the past few sessions.

German retail sales rose sharply in May, by 13.9% compared to a Reuters forecast of 3.9%, reflecting a rebound in private consumption as Germany lifted its coronavirus lockdown. The focus will be on German unemployment data for June due at 0755 GMT. Final manufacturing activity data is also due in Europe at 0800 GMT. In the United States, investors will focus on employment data due at 1215 GMT and manufacturing activity data at 1400 GMT. Fed meeting minutes are also due.

"Data today should allow markets to see the glass half-full," ING analysts told clients. "It is possible that better economic data drowns out the noise from rising covid cases globally," the ING analysts said. "Survey indices ... in particular have a tendency to revert to the mean after their sharp drop in recent months but only due to a stabilization of activity at low levels," they added.

Germany's 10-year yield rose to a one-week high, rising 2 basis points on the day to -0.44, after hitting one-month lows in recent sessions when the focus was on rising coronavirus cases. Italy's 10-year yield was up 1 basis point to 1.34% after hitting its lowest since March on Tuesday.

In the primary market, Portugal is expected to sell a 15-year bond after hiring a syndicate of banks on Tuesday, a memo seen by Reuters showed. Italy will raise its 2020 budget deficit to around 11.6% from the current 10.4% goal, a senior government official told Reuters on Tuesday, as it will approve a new 20 billion euro spending package in July.

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