Bund yields edge up from multi-week lows, US data in focus

Euro zone benchmark Bund yields edged up ​from multi-week lows on Thursday ​as investors awaited further U.S. ‌data for ​guidance, though any spillover into the euro area is expected to be limited. While markets priced in more ‌Federal Reserve rate cuts, the European Central Bank has been firmly on hold since last summer, reducing volatility in the euro area's fixed-income market.

Germany’s 10-year government bond ‌yield, the euro area’s benchmark, was up 0.5 basis points (bps) at 2.80% after hitting ‌2.793% a day earlier, its lowest level since January 14. U.S. Treasury yields edged up, with the benchmark 10-year at 4.17% in early London trading, after climbing the day before as economic data ⁠dented ​expectations that the ⁠Fed could have sufficient leeway for a rate cut in the near term.

Harsh weather in the ⁠U.S. affected the survey of households, resulting in a below-average response rate of 64.3%, ​causing some economists to caution against reading too much into the decline in ⁠the unemployment rate from 4.4% in December. Inflation data is due on Friday and will be ⁠the ​next indicator for the market on interest rate cuts.

Money markets priced in a 23% chance of an ECB rate cut by December. Germany’s 2-year yield, which ⁠is more sensitive to expectations for policy rates, was flat at 2.05%.

Italy’s 10-year ⁠government bond yields ⁠rose one bp to 3.42%. The gap versus Bunds was at 60 bps after falling to 53.50 in mid-January, its lowest ‌level ‌since August 2008.