Euro zone bond yields drop as U.S. labour market slows
Updates after U.S. jobs data
By Harry Robertson
LONDON, Sept 6 (Reuters) -Euro zone government bond yields fell for a fourth consecutive day on Friday as data confirmed the U.S. jobs market is slowing down, setting the Federal Reserve up to cut rates later this month.
U.S. non-farm payrolls data on Friday showed the economy added 142,000 jobs in August, compared to a downwardly revised 89,000 in July and below the 160,000 economists expected.
The unemployment rate dipped to 4.2%, from 4.3% in July, however. U.S. and European yields had already been trading lower and slipped further after the jobs report.
Germany's benchmark 10-year bond yield DE10YT=RR fell 6 basis points (bps) to 2.158%, its lowest since weak U.S. jobs data sparked a stock-market sell-off and rally in bonds in early August. Yields move inversely to prices.
"The August U.S. labour market report painted something of a mixed picture of the employment situation," said Michael Brown, senior research strategist at Pepperstone.
"All of this does little to clear-up the debate over the (size of the rate cut) at the September Fed meeting."
Data this week has suggested the all-important U.S. economy is cooling, with job openings, private payroll growth, and manufacturing activity all falling, helping pull down global bond yields as investors position for rate cuts.
The Fed is seen as almost certain to lower borrowing costs later this month, although the market is split on whether it will be a 25 or 50 bp reduction.
Italy's 10-year yield IT10YT=RR fell 6 bps to its lowest since December at 3.51%. The gap between Italian and German bond yields DE10IT10=RR stood at 135 bps.
The size of the U.S. economy and importance of the dollar means American data has an outsized influence on markets and central banks around the world.
Adding to the gloomy mood about the economy, data showed German industrial orders dropped 2.4% in July, a much bigger fall than the 0.3% decline expected by economists.
Separate figures showed euro zone second quarter growth was revised lower to 0.2% quarter-on-quarter, from 0.3%.
Germany's two-year bond yield DE2YT=RR, which is more sensitive to European Central Bank rate expectations, was down 6 bps at 2.231%, the lowest since Aug. 5.
The European Central Bank meets next week and is widely expected to cut rates by 25 bps to 3.5%, although the outlook beyond that is less clear.
Money market pricing shows traders currently expect around 64 bps of cuts between now and 2025, up from around 59 bps at the start of the week.
Reporting by Harry Robertson; Editing by Jamie Freed, Mark Potter and Angus MacSwan
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