Euro zone yields dip but head for weekly rise as markets calm down
Updates at 1450 GMT
By Harry Robertson
LONDON, Aug 9 (Reuters) -Euro zone bond yields were on track for a weekly increase after a highly volatile few days, although they dipped on Friday in a sign of lingering investor nerves heading into the weekend.
Germany's 10-year bond yield DE10YT=RR, the benchmark for the euro zone, was down basis 5 points at 2.224%, while European and U.S. stocks were mixed, but was on track for a 6-bp rise for the week. Yields move inversely to prices.
The yield had tumbled on Monday morning in Europe as investors flocked to the safety of government bonds, spooked by the biggest one-day fall in Japanese stocks since 1987 and a slide in European equities and U.S. futures.
A combination of a slowdown in the U.S. jobs market in July, a dramatic rally in the Japanese yen, and doubts about the benefits of artificial intelligence has caught investors off guard and caused volatility in financial markets to spike.
Yet some stronger than expected U.S. economic data - a services sector survey on Monday and weekly jobless claims on Thursday - helped allay worries about a recession, boosting stocks and pushing bond yields back higher.
"Fears of the U.S. economic juggernaut crashing into recession would appear to be somewhat overblown," said Christian Reicherter, an analyst at DZ Bank.
Germany's two-year bond yield DE2YT=RR was last down 2 bps at 2.385% and was set to end the week 5 bps higher.
Italy's 10-year yield IT10YT=RR was down 7 bps at 3.639% and was on track to end the week up 1 bp. The gap between German and Italian borrowing costs DE10IT10=RR stood 4 bps lower than on Monday at 141 bps.
Euro zone yields remain well below the multi-month highs touched in July, with a cooling of U.S. and European inflation, and a softening of the American labour market, bolstering expectations for interest rate cuts.
Investors are now expecting the U.S. Federal Reserve to cut rates by 100 bps this year, up from 85 bps a week ago but down from as much as 125 bps on Monday.
The size and importance of the U.S. economy and dollar means a change in rate cut pricing for the Fed typically influences expectations about other central banks.
"With growth seemingly cooling down, the direction of rates is lower, but the potential pace of central banks' easing remains uncertain," said Benjamin Schroeder, senior rates strategist at ING.
"Inflation is sticky, and economic numbers, notably in the euro zone, paint a mixed picture," he said.
Traders on Friday were pricing in around 65 bps of further cuts from the European Central Bank this year, up from around 55 bps a week ago.
German yields tick up after sliding on economic worries German yields tick up after sliding on economic worries https://reut.rs/3LNano2
Reporting by Harry Robertson; additional reporting by Alun John; Editing by Ana Nicolaci da Costa and Susan Fenton
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