Euro zone yields drop, markets boost bets on ECB rate cuts after US data

Euro area bond yields fell on Friday after U.S. data showed the economy created fewer jobs than expected, increasing the likelihood that the Federal Reserve will cut rates next month.

U.S. job growth slowed while the prior month's data was revised sharply lower, pointing to a sharp moderation in the labour market.

Long-dated government bonds came under selling pressure before U.S. figures, as concerns over rising fiscal spending returned to focus.

Money markets increased their bets on future European Central Bank rate cuts, now pricing in around a 60% chance of an easing move by year-end (EURESTECBM3X4=ICAP), up from 50% before the U.S. data release.

They also see an 80% chance of the same move by March 2026 (EURESTECBM5X6=ICAP), compared to 65% previously.

Germany's 10-year bond yield (DE10YT=RR), the benchmark for the euro zone, fell 1.5 basis points (bps) to 2.68%.

Germany's two-year yield (DE2YT=RR) dropped 4 bps to 1.91%, after hitting 1.967% early in the session, its highest level since early April.