Euro zone bond investors shrug as data confirms gloomy economy

Euro zone bond yields wavered but found little direction on Thursday after survey data showed the bloc’s economic downturn is likely to have continued in November.

The yield on Germany’s 10-year bond, the benchmark for the bloc, was last unchanged on the day at 2.57%. 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 economists expected.

“Ongoing weakness in the euro zone business surveys suggests a recession is on the horizon,” said Mike Bell, global liquidity market strategist at J.P. Morgan Asset Management.

“There is no need for the ECB to hike rates any higher. The main question now is around the timing and magnitude of cuts to come.”

Italy’s 10-year bond yield was last 2 basis points (bps) higher at 4.338%. The yield on France’s 10-year bond was up 1 bp at 3.138%.

PMI data from Germany showed that the euro zone’s biggest economy fared better than expected in November, although activity still contracted. German bond yields rose after the release but then slipped back.

Yields on European and U.S. bonds have tumbled in recent weeks, after hitting multi-year highs in October. Data has suggested growth and inflation are cooling, making further central bank rate hikes unlikely in the eyes of investors.

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

Trading on Thursday was more subdued than usual, with U.S. traders set to be out for Thanksgiving and Japanese markets closed for holiday too.

Germany’s 2-year bond yield, which is sensitive to interest rate expectations, was last flat on the day at 3.017%. It has cooled from a 15-year high of 3.393% in July.

European Central Bank official and German central bank chief Joachim Nagel on Wednesday said economic data would determine if interest rates need to rise again. ECB official Isabel Schnabel is due to speak on Thursday evening.

The ECB halted a streak of 10 straight hikes in October, leaving interest rates at a record high of 4%.

Traders on Thursday reckoned the ECB will cut rates by around 90 bps by December 2024, according to pricing in derivatives markets, a bet that has held roughly steady since the start of November.
Source: Reuters (Reporting by Harry Robertson; Editing by Emelia Sithole-Matarise)