UPDATE 3-Euro zone bonds yields claim 3-month highs in volatile session

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(US Treasury, adds context)

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Oct 8 (Businesshala) – Euro zone bond yields rose to a three-month high in a volatile session on Friday, with investors contemplating that disappointing US jobs data could prompt the Federal Reserve to go ahead with its stimulus tapering plans. Will not derail the expectations.

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The monthly non-farm payrolls report shows US job growth slowed sharply and the economy added less than half of the jobs analysts expected in September.

But after an initial drop, the US benchmark 10-year yield hit its highest level since June at 1.608%, lifting its counterparts in the euro area.

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After hitting a high of -0.147%, a level also hit earlier this week, Germany’s 10-year bond yield fell to -0.185% before reclaiming session highs.

At 1500 GMT, the benchmark for the euro zone was up 3.8 basis points on the day.

US Federal Reserve Chairman Jerome Powell said at the bank’s September policy meeting that a “reasonably good” employment report would meet the bank’s limit on reducing bond purchases.

“There is less need for the market to be concerned about an accelerated pace of hikes from the Fed,” said Mizuho strategist Peter McCallum, who still expects the Fed to begin reducing its bond purchases in November.

The US Senate on Thursday approved legislation to temporarily increase the federal government’s $28.4 trillion debt limit and avoid the risk of default this month. But it deferred a decision on a longer-term measure until early December.

In the euro area, investors have stepped up ECB rate hike bets with other central banks such as the Fed and the Bank of England in recent weeks. Money markets now price a 10-bps ECB rate hike over 60% probability in December 2022.

“The market is pricing heavily on the prospect of rate hikes in Europe in the near term,” said Nick Sanders, portfolio manager at Alliance Bernstein.

“The ECB is clear that their inflation forecast in the medium term will still remain below their target.”

On Friday, ECB President Christine Lagarde said the euro area’s economic recovery faces friction and imbalances, like rising energy prices and supply chain disruptions, that could hold it back and last beyond the end of the pandemic. . (Reporting by Yoruk Bahcelli; Additional reporting by Julian Ponthas; Editing by Kevin Liffy, Kirsten Donovan and Sonya Hepinstall)

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