Eurozone bond yields rise as higher-than-expected PMIs signal worst may be over

London  — Eurozone bond yields rose as business surveys from the eurozone suggested the continent is recovering from the depths of the Covid-19 crisis as they emerge from lockdown.

Eurozone purchasing managers’ indices (PMI) showed a further contraction in June across the bloc but the historic fall in April slowed again this month. The PMI is a gauge used to track the economic direction of business trends in an economy. 

IHS Markit’s Composite Purchasing Managers’ Index (PMI) recovered more than expected to 47.5 from May’s 31.9, after touching a 13.6 record low in April.

The corresponding French and German surveys showed a business recession easing in the bloc’s two largest economies.

“For now as lockdowns are eased, the very strong influence that has on the data in PMIs I think feeds into the risk-on mood,” said Richard McGuire, head of rates strategy at Rabobank.

Britain’s private sector also shrank less than feared in June as more businesses restarted work.

Safe haven German 10-year bond yields were up 3 basis points in late trade to -0.41% and moved further away from a near one-month low hit overnight.

German yields had dropped to their lowest level since May 26 overnight at -0.492%, tracking US Treasury yields lower.

The pick-up in market sentiment also supported inflation expectations — a key market gauge of long-term expectations in the eurozone rose to 1.096%, its highest since June 8.

In the primary market, Germany sold €4.034bn of two-year bonds, while the Netherlands raised €1.42bn in a reopening of its green bond due 2040.

Austria hired banks for the sale of a new 100-year bond that will raise €2bn. The sale is expected to be launched “in the near future,” a phrase lead managers usually use a day before the sale.

Reuters