Chinese factory activity data eases global recession fears among Euro zone

Euro zone government bond yields rose on Monday as an unexpected bounce in Chinese factory activity data eased fears about global recession risks, taking the shine off safe-haven bond markets after last month's stellar price rally. Still, given the scale of the shift in how investors view the outlook for growth and inflation, bond yields remained well below levels they traded a month ago with focus turning to manufacture surveys and the flash release of inflation in the bloc later this session.

German 10-year bond yields fell 26 basis points last month into negative territory in their biggest monthly fall since June 2016, when Britain voted to leave the European Union. Overnight data brought some calm to global markets for now.

China's Caixin/Markit Manufacturing Purchasing Managers' Index (PMI) expanded at the strongest pace in eight months in March, rising to 50.8 from 49.9 in February, above the 50-mark dividing expansion from contraction and the highest level since July 2018. Germany's benchmark 10-year bond yields rose three basis points to minus 0.04 per cent, rising off 2-1/2 year lows at minus 0.09 per cent last week.

Across the single currency bloc, 10-year bond yields rose around two-three bps on the day. The selloff was more pronounced at the very long-end of the yield curve, with 30-year bond yields in Germany and France four-six bps higher each. "The focus last week was on central bank guidance and this week's it's on the data, which is showing signs of stabilisation," said Commerzbank rates strategist Rainer Guntermann. "For the week, we see Bund yields staying below zero per cent but edging higher."

Euro zone inflation will take longer to rise as political uncertainty is weighing on growth and the European Central Bank underestimated slack in the labour market, ECB board member Sabine Lautenschlaeger said in a newspaper interview. Data on Monday is expected to show headline inflation in the bloc rose 1.5 per cent in March, unchanged from a month earlier, economists polled by Reuters forecast.

Britain remains in focus meanwhile with parliament on Monday expected to vote on different Brexit options. British Prime Minister Theresa May could try bringing her deal back to a vote in parliament as soon as Tuesday.