Eurozone yields rise as European slowdown eases slightly

Euro zone bond yields rose on Thursday after economic data showed European economies struggled in November, but less than expected.
The yield on the German 10-year bond, the benchmark for the bloc, rose 3 basis points (bps) to 2.593%. Yields move inversely to prices.

Business activity in the euro zone contracted in November, according to Purchasing Managers’ Index (PMI) survey data released on Thursday, although the figures were slightly less bad than forecasts. economists expected.

Data for Britain was more positive, with businesses reporting a marginal return to growth in November after three months of contraction.

“I think it’s mainly the better-than-expected PMIs in Europe and the UK this morning that are pushing yields higher,” said Imogen Bachra, head of non-dollar rates strategy at Natwest Markets.

The yield on Italian 10-year bonds rose 7 basis points to 4.39%. The yield on the 10-year French bond was up 6 basis points at 3.19%.

UK bonds were worst hit, with the 10-year yield up 9 basis points to 4.25%. American markets were closed for Thanksgiving.

PMI data from Germany showed the euro zone’s largest economy performed better than expected in November, although activity contracted further.

“Judging by the PMI data, the risks to our near-term forecast for economic activity in the eurozone and the United Kingdom are less significant than before,” said Holger Schmieding, chief economist at Berenberg in London.

European and U.S. bond yields have fallen in recent weeks, after hitting multi-year highs in October. Data suggests growth and inflation are slowing, making further interest rate hikes from the central bank unlikely in investors’ eyes.

Germany’s 10-year yield, for example, has fallen from a 12-year high of 3.024% in early October. Italy’s is down from 5.025% last month, an 11-year high.

The yield on German 2-year bonds, which is sensitive to interest rate expectations, rose 3.5 basis points to 3.05%. It fell from its 15-year high of 3.393% in July.

The head of the European Central Bank and the German central bank, Joachim Nagel, said on Wednesday that economic data would determine whether interest rates should be raised again. ECB official Isabel Schnabel is due to speak on Thursday evening.

The ECB ended a streak of 10 consecutive hikes in October, leaving interest rates at a record low of 4%.

Eurozone inflation is falling as expected, if not a little faster, but the ECB must maintain the possibility of interest rate hikes, policymakers agreed last month, according to their meeting minutes October 25 and 26.

On Thursday, traders estimated that the ECB would cut rates by almost 90 basis points by December 2024, depending on prices in derivatives markets.

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Beth Malcolm

Beth Malcolm is Scottish based Journalist at Heriot-Watt University studying French and British Sign Language. She is originally from the north west of England but is living in Edinburgh to complete her studies.