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by 3 minutes tmsnrt.rs/2ii2Bqr tmsnrt.rs/2ii2Bqr tmsnrt.rs/2ii2Bqr tmsnrt.rs/2ii2Bqr (Adds comments, PMIs, and an inflation gauge) (Reuters) – LONDON, July 5 (Reuters) – Euro zone government bond yields rose a smidgeon on Monday, but analysts expect the recent downward trend to resume after last week’s US payrolls data failed to persuade investors away from fixed income’s safety. Last week, the German 10-year Bund yield fell 8 basis points, the greatest weekly decline since December 2020. The reduction in euro zone yields was ascribed by analysts to concerns over the economic impact of the Delta variation of COVID-19, as well as predictions that the European Central Bank would maintain its dovish stance. In a note to investors, Morgan Stanley analysts wrote, “Even in a more favorable Delta scenario, we now expect greater restrictions on international travel, damaging the vital tourism sector in southern Europe for a second summer.” Despite this, a survey released on Monday revealed that euro zone business activity grew at its strongest rate in 15 years in June, owing to the lifting of additional coronavirus restrictions, which aided the bloc’s leading service industry. The five-year, five-year inflation forward, a measure of euro zone inflation expectations, climbed to 1.598 percent, the highest level since May. The June jobs report in the United States indicated that the economic recovery was continuing, but it did not necessitate a reduction in Federal Reserve assistance. Treasury yields in the United States were hardly affected by the news, and they closed the week down as well. The minutes of the Federal Open Markets Committee’s June meeting, which will be issued on Wednesday, will be the next test for bond markets. The Fed stunned markets by announcing two rate hikes by the end of 2023 at that meeting. Germany’s 10-year Bund yield was up one basis point at -0.221 percent at 0706 GMT. The benchmark 10-year rates in France and Italy were also up 2 basis points. “The increase in COVID-19 instances in many parts of the world continues to distort risk sentiment. Surprisingly, these concerns are more visible in rates than in other markets “In a letter to clients, ING rates analysts said. “This is not unusual in periods when central banks have a strong involvement in financial asset pricing. The rationale goes like this: if the outlook worsens more, monetary assistance measures will be unwinded even more slowly.” According to ING analysts, euro zone rates are projected to skew lower in the coming days. Rainer Guntermann, a rates analyst at Commerzbank, said that the German 10-year yield will hover between -0.1 percent and -0.25 percent for the rest of the summer, before falling in the next days. At 1700 GMT, ECB Vice President Luis De Guindos will talk. (Elizabeth Howcroft contributed reporting; Kirsten Donovan and Catherine Evans edited the piece.)/nRead More

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