But the unemployment rate fell and wage growth held steady, suggesting the U.S. economy remains resilient in the face of interest rate hikes.
Germany‘s two-year yield was last down 6 basis points (bps) at 3.301%, having traded at 3.339% before the data was released. Yields move inversely to prices.
The falls were less pronounced in longer-dated bond yields. Germany’s 10-year yield, the benchmark for the euro area, initially fell sharply but was last down only marginally at 2.625%, compared with 2.642% before the data.
“There’s a little bit of something for everybody in today’s data, and I think the market’s looking at the earnings more than the headline number,” Nick Chatters, investment manager at Aegon Asset Management, said.
It has been a volatile week for bond markets, with yields on longer-dated bonds
jumping on Thursday
after economic data suggested central banks will have to keep hiking interest rates to tame inflation.
Germany’s 10-year yield rose 15 bps, the most since the banking turmoil in March, on Thursday after a stronger-than-expected U.S. ADP national employment report.
Meanwhile, Germany’s two-year bond yield, which is highly sensitive to interest rate expectations, hit its highest level in 15 years at 3.393%.
Friday’s employment figures calmed bond markets somewhat, but Germany’s 10-year yield was nonetheless on track for its biggest weekly rise since April as of 1505 GMT on Friday.
The jobs data “is unlikely to stop the Fed from hiking rates again later this month, particularly when the downward trend in wage growth appears to be stalling,” Andrew Hunter, deputy chief U.S. economist at consultancy Capital Economics, said.
Traders broadly expect the Fed to raise interest rates again this month by 25 basis points, taking them to a range of 5.25% to 5.5%.
Markets reckon the European Central Bank has further to go. Pricing in derivatives markets shows traders think ECB rates will peak at around 4% later this year, from 3.5% currently.
Italy’s 10-year bond yield, often seen as a benchmark for the more indented euro zone states, slipped 3 bps to 4.358%. It remained on track for a weekly rise of 28 bps, however, its biggest weekly increase since December.
Aegon’s Chatters said the rise in longer-dated yields this week was somewhat surprising, given that economies are slowing.
“Nothing is certain but with the information that we have at the moment, this is an opportunity for yields to fall for this level over the course of the next six months or year,” he said.