Global bond yields rise 2 bps ahead of U.S. June jobs data

Eurozone, U.K., U.S., and Japanese government bond yields edged higher Thursday as investors positioned for the June U.S. employment report that could shape the Federal Reserve's rate path.

Government bond yields across major advanced economies rose in lockstep Thursday, with the 10-year U.S. Treasury yield climbing 1.8 basis points to 4.492%, as traders braced for the June employment data that may determine whether the Federal Reserve tightens policy further.

"An outcome around expectations — and note that the outcome has surprised on the upside over the past three months — means that the Federal Reserve can continue to set the inflation target ahead of the employment target," said Karl Steiner, head of analysis at SEB.

The moves were synchronized across regions. The 10-year German Bund yield rose 2.2 basis points to 2.898%, tracking U.S. Treasurys higher, according to Tradeweb data. U.K. gilt yields climbed 2.3 basis points to 4.784%, while Japan's 10-year government bond yield added 1.5 basis points to 2.715% in early Tokyo trading. The day's focus centers on the June employment report due at 1230 GMT, published a day early because of the U.S. Independence Day holiday on Friday.

A strong jobs print would reinforce the Fed's ability to prioritize inflation over employment, potentially keeping rates higher for longer. A miss could revive bets on rate cuts. The highly anticipated panel at the European Central Bank's Sintra forum Wednesday — featuring Fed Chairman Kevin Warsh, ECB President Christine Lagarde, BoE Governor Andrew Bailey, and BoC Governor Tiff Macklem — "didn't yield much really new insights on the short-term dynamics of monetary policy," KBC Bank analysts said in a note, leaving markets to focus squarely on the data.

The yield curve has flattened notably over recent weeks, driven by rising short-dated yields even as long-dated yields edged lower. Capital Economics' James Reilly said he "wouldn't be surprised if this curve inverted, but we don't think a U.S. recession is likely." The flattening has been fueled by falling term premia weighing on long-dated real yields, strong economic activity pushing up short-dated real yields, and the collapse in oil prices putting downward pressure on short-term inflation expectations. "Our sense is that this curve flattening has room to run," Reilly said.

In Japan, the Ministry of Finance auctioned about 2.6 trillion yen of 10-year sovereign debt Thursday. Citi Research rates strategist Tomohisa Fujiki said he expects demand from pension funds at the auction, citing the Government Pension Investment Fund's increased buying activity last fiscal year.

The outlook for government bonds has improved as geopolitical tensions ease and energy prices fall, analysts at The Investment Institute by UniCredit said. However, they cautioned that central banks' cautious stance is likely to prevent a significant decline in yields. They expect the 10-year U.S. Treasury yield to trade around 4.5% and the 10-year Bund yield near 3% over the coming quarters. Short-dated U.S. Treasury yields have room to decline as rate hike expectations appear overly aggressive, while the long end remains more exposed to fiscal risks, they said.

The Investment Institute by UniCredit also sees more value in eurozone government bonds than in U.S. Treasurys, citing greater U.S. exposure to fiscal risks. They expect the 10-year Italian BTP-German Bund yield spread to hover around 70 basis points, compared with 78 basis points at Wednesday's close.

This article is for informational purposes only and does not constitute investment advice.