German bond yields rose sharply after stronger-than-expected PMIs
Yields had already risen after S&P Global’s Flash Composite Purchasing Managers’ Index in Germany, which tracks manufacturing and employment, although it fell sharply in August, fell slightly below analysts’ expectations.
Despite remaining in the lower sector, the production index rose again, instead of the decline expected by experts.
The next eurozone data also showed a decline in employment, although the reading was also better than analysts had expected.
The yield on the 10-year German Bund rose 7 basis points (bps) to its highest level since July 21 at 1.38%, before easing slightly. The yield on the two-year bond reached a new high of 0.941%, the highest since late June, before retreating at the end of the session.
“I don’t think the PMI numbers are a game-changer, they’re still slightly below 50, which is indicative of slower growth,” said Richard McGuire, head of inflation at Rabobank.
A count below 50 indicates that the service is working.
“There is not much news today, it’s just a continuation of the bearish noise. The PMIs are not doing anything to stop the recent strength,” added McGuire.
After falling sharply at the start of the summer on fears of a recession, building yields rose sharply last week on the back of a sharp rise in inflation in Britain, fears over gas in the eurozone and hawkish comments from European Central Bank policymakers.
The main market indicator of long-term inflation expectations in the eurozone, followed by the ECB, rose to 2.2399%, the highest since the beginning of June, continuing the strong rise since the beginning of last week, when it was 2.06%.
In Italy, the 10-year yield rose to 3.72%, the strongest level since July 21. The most watched spread for its German counterpart was an early 233, the highest since July 29.
In other markets, German stocks rose above the pan-European STOXX 600 index, while the euro shed its losses after the data, after hitting a new 20-year high of $0.99005.
In terms of lending, Finland has raised 3 billion euros through the bond, according to a statement by a senior manager seen by Reuters.
This is the first eurozone government bond sale, where lenders hire commercial banks to sell the debt directly to investors, since May.