What’s going on here?
Euro zone bond yields dipped slightly on Friday as markets awaited critical US job data and digested the UK’s Labour Party landslide win.
What does this mean?
Germany’s 10-year bond yield, often seen as a euro zone benchmark, slid by 2 basis points to 2.562%. France’s equivalent fell by 3 basis points to 3.245%, marking a weekly drop of around 4 basis points. The yield gap between French and German bonds hit its lowest since June 13, easing investor concerns over Marine Le Pen’s party securing a parliamentary majority. Italy’s bond yield took the sharpest dive, dropping 6 basis points to 3.95%, narrowing the yield spread with German bonds to near its lowest level in over three weeks. Meanwhile, UK bond yields dropped by 4 basis points across Europe, spurred by the Labour Party’s decisive election victory.
Why should I care?
For markets: Global yields feel the pressure.
Upcoming US jobs data is crucial. If it signals a slowdown in employment and wage growth for June, it could cement expectations for a Federal Reserve rate cut. Prior weak US economic indicators have already nudged global bond yields lower, demonstrating the interconnected nature of today’s markets. Watch for further dips if US labor market data supports a dovish Fed stance.
The bigger picture: Politics and policies intertwine.
While the French election seems to have lost its grip on markets with risks diminishing, the broader influence of political events remains potent. Keir Starmer’s Labour win in the UK has bolstered the pound and UK stocks, reflecting how political stability can reassure investors. Concurrently, persistent soft data from the US could pave the way for a global trend of easing monetary policies, benefiting both US and euro zone bond markets.