Bond yields in France and Spain were set on Friday for their biggest weekly falls in six weeks, while a key market gauge of long-term inflation expectations slid back towards record lows in a sign of growing concern about weak growth and inflation. Dismal business activity data from the euro area, especially powerhouse economy Germany this week, has pushed yields across the bloc to their lowest since the European Central Bank unleashed fresh stimulus on Sept. 12.
The European Commission said on Friday that its monthly indicator of the economic mood in the 19-nation bloc fell in September to its lowest level in almost five years, to 101.7 points from 103.1 in August.
A key market gauge of the euro zone's inflation expectations fell to its lowest level since early July at 1.188%, heading back towards record lows hit in June. "There was a bit of hope on inflation expectations and then the data came out," said Peter Schaffrik, global macro strategist at RBC Capital Markets, referring to Monday's PMI data.
Complementing the week's weak data readings, dovish comments from a Bank of England policymaker and European Central Bank chief economist Philip Lane on Friday reinforced expectations for global monetary easing.
The ECB is not yet approaching the limit to how far it can cut its deposit rate without hurting lending or triggering a dash to cash, Lane said. French and Spanish 10-year bond yields are down 6-9 basis points this week, their biggest weekly falls in six weeks.
Most 10-year bond yields were up around 1 basis point on Friday, with Germany's 10-year Bund yield at -0.58%, down 6 bps on the week. Bond yields have drifted down since the ECB's meeting two weeks ago while the key five-year, five-year inflation gauge - tracked by the ECB - has given back the gains it made following the announcement of a stimulus package on Sept. 12 aimed at boosting growth and inflation.
Even signs that the bloc's biggest economies are loosening their purse strings failed to push bond yields significantly higher. Presenting France's 2020 budget late on Thursday, Finance Minister Bruno Le Maire said taxes would be cut by more than 10 billion euros next year.
Long-dated French bonds underperformed on Friday, with the 30-year yield up 4 bps after the debt management agency said it will raise the amount of bonds it issues next year, to 205 billion euros of medium and long-dated bonds next year, up from 200 billion euros this year.