jobless benefits jumped last week to the highest level since late 2021, while
producer prices rebounded modestly.
The consumer price index in the United States rose 4.9% on a year-on-year basis in April, data on Wednesday showed.
Germany's 10-year bond yield was down 8 basis points (bps) at 2.22%, after hitting a one-month low at 2.174%. Italy's 10-year yield was last down 9 bps at 4.12% after reaching its lowest since April 12 at 4.087%. The gap between German and Italian 10-year yields held steady at 189 basis points.
"U.S. job data provided a weaker economic backdrop, propping up expectations for lower inflation and for the Fed to pause at its next policy meeting," said Massimiliano Maxia, senior fixed-income strategist at Allianz Global Investors.
"The U.S. market is in the driver's seat," he added.
The drop in euro zone yields happened despite Bloomberg
reporting that some European Central Bank officials think
interest rate hikes might be needed as far out as September and
that rates could rise to 4%.
Last week, the ECB raised rates by 25 bps to 3.25%, a
slowdown in the pace of increases.
"Everyone thinks that once the Fed is done" the ECB will
follow, said Pooja Kumra, European strategist at TD Securities.
Euro area yields rose earlier in the session after an ECB
survey showed consumers raised their inflation expectations in
March for the first time since the autumn.
The German two-year yield , which is more
sensitive to policy rate expectations, was down 4 bps at 2.58%,
at its lowest in almost a week.
Joachim Nagel, an ECB policymaker and German central bank
chief, told Bloomberg on Thursday that the "story about hiking
rates is not over".
Yet on Wednesday, ECB policymaker Mario Centeno said the
central bank is approaching the end of the rate-hiking cycle,
remarks that Pablo Hernandez de Cos reiterated on Thursday.
"Investors assign greater downside than upside risks to what
the ECB presents as their baseline - implicitly a terminal
(rate) of 3.75% to 4%," said Sphia Salim, European interest rate
strategist at Bank of America.
Money markets priced in the ECB depo rate to peak at
3.7% in September 2023.
The Bank of England raised rates as expected on Thursday and said it no longer expected a recession, but anticipated that inflation would take longer to fall than it had hoped. <^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^ Euro zone bonds ^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^> (Reporting by Stefano Rebaudo and Harry Robertson; Editing by Paul Simao and Andrea Ricci)
