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German 10-yr yields dip below -0.5% first time since January

08/04/2021 | 07:29am EDT
FILE PHOTO: A Specialist trader watches his chart while working on the floor of the New York Stock Exchange

* Euro zone yields near six-month lows

* Attention turns to U.S. Friday job numbers

LONDON, Aug 4 (Reuters) - German 10-year government bond yields slipped below the ECB's policy rate on Wednesday for the first time in over six months, but edged off those lows towards close of trade as comments by a Fed policymaker weighed on U.S. Treasuries.

After a plunge in yields in July, borrowing costs have continued to fall across the euro zone this month and the German 10-year yield, the euro zone benchmark, touched an end-January low of -0.517%, falling below the European Central Bank's deposit rate.

However, by close, the yield was back at -0.481%, after Fed Deputy governor Richard Clarida said the U.S. economy was getting closer to the bar set by the Fed to reduce stimulus.

If his baseline materialized, a reduction in the pace of purchases was possible later this year," Clarida said.

U.S. 10-year Treasury yields were last up 3.6 bps at 1.21%, having earlier in the day plumbed a low of 1.127%. That low came after the Treasury Department said it would keep debt issuance steady over the coming quarter, but is considering reductions in future quarters.

U.S. private payrolls also increased far less than expected in July, the ADP report showed.

Euro zone yields ended the session flat on the day, however, with French yields near -0.137%, off an earlier low of -0.169% and Italian 10-year yield, which hit a six-month low at 0.538%, was at 0.568% towards close.

The euro zone debt market is supported by bets the European Central Bank (ECB) will keep yields low to support economic recovery from the pandemic.

"It seems that rates are on autopilot, trying to find the bottom of this year's trading range," ING Bank analysts said, adding that "U.S. rates are increasingly in the driving seat of this rates rally while their German counterparts have struggled to make new lows."

The 30-year German yield, which sent the whole German yield curve into negative territory on Monday, was back below 0% at -0.03%.

Citing ECB data released on Monday, analysts have noted that the average maturity of public sector debt the bank holds under its Pandemic Emergency Purchase Programme exceeds that of the universe of eligible bonds for the first time, putting downward pressure on longer-dated yields.

Final July purchasing managers index survey data published on Wednesday was slightly worse than expected, but still showed activity expanding at its fastest pace in 15 years.

U.S. non-farm payrolls data due on Friday is the more important upcoming data release. Traders say euro zone markets may take their next cue from the Treasury bond market and its reaction to the numbers.

(Reporting by Tommy Wilkes and Sujata Rao; Editing by Emelia Sithole-Matarise and David Evans)

ę Reuters 2021
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