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* Euro zone periphery govt bond yields tmsnrt.rs/2ii2Bqr
MILAN, June 4 (Reuters) – Euro zone government bond yields slowly edged lower on Friday after a slightly weaker than expected U.S. May employment report, with investors looking for cues about the U.S. Federal Reserve’s bond-buying tapering discussions.
The Labor Department’s report showed nonfarm payrolls increased by 559,000 jobs last month, following an unexpected slowdown in the labour market in April. Economists polled by Reuters had forecast 650,000 new jobs.
Massimiliano Maxia, a senior fixed income specialist at Allianz Global Investors, highlighted that the rise of nonfarm payrolls was weaker than expected, while hourly earnings numbers were stronger.
“Today’s data probably won’t change much the scenario for government bond yields in the short term, pending the U.S. inflation figure due on June 10. We expect euro zone bond and U.S. bond yields to stay not far from the current levels over the next few days,” he said.
The Treasury 10-year’s yield was down 2 basis points .
It rose in light trading on Thursday after an ADP National Employment Report showing private payrolls increased by 978,000 jobs, the biggest increase since June 2020.
Germany’s 10-year yield, the benchmark for the bloc, was down 1.5 basis points by 1328 GMT, at -0.202%.
According to Commerzbank analysts, “more than 600,000 U.S. jobs should have been enough for Federal Reserve chairman Jerome Powell to officially start the tapering debate at the FOMC meeting on 16 June.”
Most analysts expect the Fed to disclose tapering plans at its Jackson Hole, Wyoming, economic symposium in August.
“The arguments on both sides of the inflation and overheating debate are hardly likely to go away soon,” Deutsche Bank analysts said, recalling “Fed Chair Powell’s argument that he wants to see a ‘string’ of good jobs numbers before the Fed starts to pare back its support.”
Euro zone borrowing costs had been stable in the last few days after falling on expectations for the European Central Bank (ECB) to maintain the Pandemic Emergency Purchase Programme (PEPP) pace and not to mention a bond-buying tapering at its June 10 meeting.
“Next week’s ECB meeting will be another opportunity for the ECB to send a dovish message and repeat that any talk of winding down the PEPP is premature,” SG analysts said.
Fitch is scheduled to publish its review on Italy’s sovereign debt on Friday, after the credit rating downgrade in April 2020 amid a significant impact of the pandemic.
Analysts at UniCredit do not see any change in the rating assessment. Still, they expect the credit rating agency “to focus mainly on economic prospects in the short and medium-term, as these will be key for a credible fiscal strategy.”
Italy’s 10-year government bond yield fell by 0.5 basis point to 0.89%.
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