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Bond Selloff Hits Europe as Traders Ax ECB Bets After Jobs Data – BNN Bloomberg

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(Bloomberg) — Traders pared bets on further interest-rate cuts in the euro-area and European bonds slumped after data showed the US job market is holding up better than expected, imperiling the case for looser monetary policy around the world.

Markets briefly trimmed expectations for additional easing by the European Central Bank to just 29 basis points — equivalent to little more than one further quarter-point reduction through December — before inching back higher. Traders were predicting as many as six cuts at the start of the year.

Meanwhile, the yield on five-year German notes rose 8 basis points to 2.69%, on track for the biggest daily move since February, as traders tempered wagers on monetary easing globally. Treasury yields also soared, with yields rising more than 10 basis points across the curve.

The moves derailed a nascent bond rally that had seen global bonds on their best streak of the year. The market is growing increasingly skeptical over how many reductions policymakers stands to deliver this year after the European Central Bank on Thursday reduced its benchmark rate — as widely expected — but raised its inflation forecast for the coming years.

“It’s a spillover effect from the US,” said Theophile Legrand, a rates strategist at Natixis SA. “Central banks may be forced to make a long, shallow rate cutting cycle because of a labor market that remains resilient despite the strong monetary tightening.”

Lagarde’s Reluctant Cut Leaves Markets Guessing on Next ECB Move

US data Friday showed job growth surged in May and wages accelerated. Nonfarm payrolls advanced 272,000 last month, a Bureau of Labor Statistics report showed, beating all projections in a Bloomberg survey of economists. Average hourly earnings climbed 0.4% from April and 4.1% from a year ago, both picking up from the prior report.

–With assistance from James Hirai and Greg Ritchie.

(Updates with additional market details, chart, quote throughout.)

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