The yield on the 10-year US Treasury note fell below 3.7% on Friday, the lowest in a month, as investors digested a batch of labor market data for February. Non-farm payrolls totaled 311,000 in the period, well above market estimates of 205,000 and in line with other hot data this week that confirms the persistent tightness in the US labor market. Still, the unemployment rate edged 0.2 percentage points higher while labor income slowed down, suggesting the job market could be starting to feel the effects of aggressive rate hikes by the Federal Reserve. Bond yields held the slide from the last session after SVB Financial Group sold debt securities to meet depositor demand, raising worries that the Federal Reserve may be forced to ease its tightening path. Money markets are now favoring the likelihood of a softer 25bps interest rate increase for the Fed’s meeting this month.
The yield on the UK’s 10-year Gilt held at a two-week low of 3.7%, as investors rushed for safety amid concerns over the US banking system and uncertainty surrounding US monetary policy. Tech lender SVB Financial Group tried on Thursday to reassure its venture capital clients their money was safe after a capital raise, leading to a bank shares' selloff across the globe. Elsewhere, the latest labor data offered a mixed picture as Federal Reserve officials debate how long to maintain rates higher to curb inflation. The February jobs report showed the US economy added more jobs than expected in February, while wage growth came in slightly below forecasts and the jobless rate rose from January's five-decade low. Earlier this week, data showed jobless claims hit an over two-month high and job openings fell less than expected.
Germany’s 10-year government bond yield held at a two-week low of 2.5%, as investors turned to safety amid uncertainty regarding US monetary policy and concerns over the US banking system after a capital raising at Silicon Valley Bank. At the same time, investors digested the latest US jobs report showing payroll growth accelerated more than expected in February, while wage growth came in slightly below expectations and the unemployment rate picked up from a 50-year high. Data on Thursday had shown an increase in weekly jobless claims to the highest level for over two months, signaling a cooling labor market in the US and prompting a reduction in rate expectations.
The yield on the Italian 10-year BTP sank to below 4.3% in March, the lowest in over three weeks, and tracking the rebound in demand for global bonds after jitters for US banks drove investors to rethink bets of a more aggressive rate hike by the Federal Reserve this month. Meanwhile, the European Central Bank is widely expected to raise interest rates by a further 50bps next meeting to extend its fight against inflation. Hawkish calls from policymakers in the currency bloc ramped up expectations that the ECB’s deposit rate could peak at 3.75% by the start of the third quarter. On the fiscal side, the Italian government's budget deficit overshot the government's target by 2.4 percentage points at 8% in 2022, as changes in accounting drove pandemic tax breaks to be accounted upfront. Still, the spread between the 10-year BTP and Bund narrowed below 180bps, close to the nine-month low of 170bps touched in February.
The yield on the French 10-year OAT fell below 3%, retreating sharply from the 11-year high of 3.24% hit on March 6th as concerns over the financial stability of US banks eased bets of more aggressive tightening from the Federal Reserve this month. Meanwhile, the European Central Bank is widely expected to raise its main rates by 50bps in the upcoming meeting to extend its fight against inflation. Hawkish calls from policymakers in the currency bloc strengthened bets that the ECB’s deposit rate could peak at 3.75% by the start of the third quarter. On the fiscal side, the French Senate voted in favor of increasing the legal retirement age by two years to 64 despite heavy opposition from labor unions.