UPDATE 2-Bleak manufacturing data pushes German Bund yield below zero pct
Germany's 10-year bond yield slid almost four basis points, touching -0.001 percent, before rising to 0.005 percent . It has tumbled around nine basis points this week alone amid uncertainty regarding Brexit and as the Federal Reserve ruled out raising interest rates this year.
The weak German purchasing managers survey data only added to the gloomy outlook for global growth, giving bond yields a fresh push lower on Friday. IHS Markit's flash composite Purchasing Managers' Index measuring activity in German services and manufacturing, which together account for more than two-thirds of the economy, fell to 51.5, it lowest reading since June 2013.
The broader euro zone PMI showed that businesses across the entire euro zone have performed much worse than expected this month with factory data contracting at its fastest pace in nearly six years, hit by a big drop in demand. The euro extended its losses and was last down 0.7 percent on the day, while Europe's fell to a session low and was on track for a weekly drop of 0.7 percent.
Other euro zone bond yields also fell sharply, with French and Spanish 10-year bond yields down nearly four bps . "The narrative behind it isn’t a big surprise ... But the size of the surprise is fairly material. These things happen very rarely, and the surprise is what matters the most for market activity," said Antoine Bouvet, rates strategist at Mizuho.
Germany's 10-bond yield last hit zero percent on Oct. 21, 2016, when Mario Draghi dispelled market concerns about tapering and said the ECB remained committed to its asset purchase programme. "We think Bund yields can now certainly revisit the minus 0.15 percent area which refocuses investor concerns about the growth trajectory," said Rabbani Wahhab, senior fixed income fund manager at London and Capital.
The fall in German bond yields was echoed across other major markets. Ten-year U.S. Treasury yields held close to 2.5 percent in early trade on Friday, while Japanese government bond (JGB) yields plunged to their lowest since November 2016.
Though looser monetary conditions and lower rates are good for bond holders, they are a result of concerns about global growth which is evident in the shape of the U.S. yield curve. At just 56 basis points, the difference between the two and 10-year German bond yields is at its lowest since October 2016, and has fallen from 130 basis points in February 2018.
Brexit remained in focus with the European Council on Thursday voting to delay Britain's exit by two weeks until April 12, with a possible extension to May 22 if lawmakers approve the withdrawal agreement next week. Ten-year British government bond yields briefly rose in early trade but were last down 2.5 bps at 1.040 percent, having fallen more than nine basis points a day earlier.
(Reporting by Virginia Furness, editing by Larry King")
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