Euro Bonds Rally as U.S. Manufacturing Slump Trumps Local Data

  • German, Italian securities erase losses made earlier in day
  • Bonds had fallen on strong regional factory, jobs figures

Government bonds rebounded from Germany to Italy, climbing alongside Treasuries, as an unexpected contraction in U.S. manufacturing backed speculation the Federal Reserve will only raise interest rates gradually.

The Institute for Supply Management’s index for factory output in November unexpectedly dropped to the lowest reading since the last recession, fueling investor appetite for the safety of government debt. European bonds declined earlier after data showed the euro region’s unemployment rate fell to an almost four-year low while manufacturing output expanded at the fastest pace since April 2014.

“The move is being led by Treasuries,” said Peter Chatwell, head of rates strategy at Mizuho International Plc in London. “European bonds are rebounding, but the catalyst of this latest leg of the rally is the very weak U.S. ISM manufacturing.”

The yield on German 10-year bunds, the euro area’s benchmark sovereign securities, dropped less than one basis point, or 0.01 percentage point, to 0.47 percent as of 4:45 p.m. London time, after climbing as much as five basis points earlier. The 1 percent bond due in August 2025 rose 0.05, or 50 euro cents per 1,000-euro ($1,062) face amount, to 105.03.

The yield on similar-maturity Italian bonds was little changed at 1.42 percent, having risen as much as five basis points earlier, while the French 10-year yield was at 0.79 percent, after jumping as much as five basis points before the U.S. report.

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