Eurozone government bond yields edged higher on Friday ahead of a speech by Federal Reserve chair Janet Yellen from which investors hope to glean further clues as to the likelihood of a US rate hike in December. The yield on the US 10-year Treasuries rose to 1.78 percent, edging towards the four-month high of 1.80 percent hit earlier in the week and putting upward pressure on Germany's 10-year Bund yield.
That benchmark rose 2 basis points to 0.05 percent, a level that DZ Bank strategist Christian Lenk described as an "inflexion point". "I think markets are trying to find a new equilibrium, and the 5 basis point yield (for German 10-year Bunds) is the point at which the sell-off seems to consolidate," he said.
Minutes published this week from the most recent meeting of Fed policymakers showed many judged a rate hike would be warranted "relatively soon" if the US economy continued to strengthen, but doubts on inflation remained. "There is a bit of nervousness ahead of Yellen's speech, and with the European Central Bank meeting next week," Lenk said. Expectations for a December hike are currently at 60 percent, according to CME's Fedwatch tool.
Ahead of Yellen's speech, which begins at 1830 GMT, data showed US retail sales rose 0.6 percent in September, meeting the expectations of economists polled by Reuters. Euro zone yields fell on Thursday on a flight-to-safety bid following weak trade data from China. They have risen sharply in recent weeks on concerns that the ECB might reduce the scale of its asset purchases before the programme finally ends. The 10-year Bund yield has risen as much as 21 basis points since the end of September, when it hit a low of minus 0.16 percent, according to Tradeweb. Ten-year gilt yields rose as high as 1.149 percent, the highest since June 23, according to Reuters data.