German 10-year bond tumbled to their lowest level in more than a year on Friday as weak US jobs data quashed expectations for a Federal Reserve rate hike soon and dragged bond yields around the world lower. The figures showing the slowest pace of US jobs growth since 2010 stunned markets and vindicated investors' bias to push euro zone yields down, a day after the European Central Bank had reinforced its dovish policy stance.
Two-year German bond yields fell to their lowest level in almost three months, while five-year yields slid below the ECB's deposit rate of minus 0.40 percent - making the bonds ineligible for the ECB's quantitative easing programme. A more than four basis point fall in German 10-year yields - the benchmark in Europe - took them to within striking distance of record lows hit last year.
The renewed fall briefly pushed all German yields out to nine years maturity below zero. "Market sentiment has been affected by the payrolls report and there's the general dovishness we saw yesterday from the ECB, which means euro zone rates will stay low for some time," said Mizuho corporate strategist Peter Chatwell. The ECB on Thursday nudged up its inflation forecast for 2016 but predicted price growth would remain below its 2 percent target through 2018 as it struggles with cheap energy feeding into the price of other goods and services.
Germany's 10-year Bund yield fell as far as 0.065 percent, its lowest level since April last year when it also hit a record low of 0.05 percent. The yield was on track for its biggest daily fall in a month. The two-year German yield fell to minus 0.53 percent , its lowest level since the ECB's March meeting when yields surged after ECB chief Mario Draghi said he did not anticipate further interest rate cuts.
Other euro zone bond yields were 1-5 bps lower on the day, dragged down by a sharp fall in their US peers. Two-year Treasury yields were on track for the largest one-day fall since March 2009. US non-farm payrolls increased by just 38,000 jobs last month, the smallest gain since September 2010, prompting traders to abandon bets on a June interest-rate hike and scale back bets on July and September.