Euro Zone Bond Yields Dip Amid U.S. Data-Driven Volatility

Euro zone bond yields fell on Friday following a surge driven by strong U.S. data. Germany's 10-year yield dropped, mirroring volatility from weak U.S. jobs data earlier in August. Investors are bracing for further fluctuations next week with expectations varying for rate cuts by the U.S. Federal Reserve and European Central Bank.

Euro zone bond yields edged lower on Friday following a U.S. data-driven jump a day earlier, with investors bracing for further volatility next week. Germany's 10-year yield, the benchmark for the bloc, was down 2 basis points at 2.24% by 0645 GMT. It jumped nearly 9 bps on Thursday on the back of strong U.S. data that boosted confidence in the world's largest economy.

Weaker-than-expected U.S. jobs data earlier in August had fanned worries about a potential U.S. recession, sending bond yields tumbling, a move echoed by euro zone debt. But yields have rebounded with better-than-expected data in recent days, with investors reducing their bets on a 50 bps U.S. Federal Reserve rate cut in September.

In the euro zone, traders were betting on over a 95% chance of a 25 bps European Central Bank rate cut in September and around 65 bps of cuts by year-end. Italy's 10-year yield was down 2 basis points to 3.62%, with the closely-watched risk premium, or spread, it pays over Germany's at around 137 bps, near two-week lows.