Euro-zone bond yields dip, economy remains sluggish
Updates in European afternoon trade
By Harry Robertson
LONDON, Jan 2 (Reuters) - Euro-zone bond yields fell slightly in thin trading on Thursday, as data showed the bloc's manufacturing sector performed slightly worse than expected in December and lending remained weak.
Germany's 10-year bond yield DE10YT=RR, the benchmark for the euro-zone bloc, was last 1.5 basis points lower at 2.35%, having dipped five bps earlier in the day. It hit a six-week high of 2.405% on Friday before falling on Monday. Yields move inversely to prices.
HCOB's final euro-zone manufacturing Purchasing Managers' Index, compiled by S&P Global, dipped to 45.1 in December, just under a preliminary estimate and further below the 50 mark separating growth from contraction. The gauge has been below 50 since mid-2022.
Separate figures showed lending to euro-zone companies and households grew at a modest pace in November, pointing to a lacklustre end of the year for the bloc's economy.
Italy's 10-year yield IT10YT=RR fell to 3.476% on Thursday. It was last down about 1 bp at 3.513%, and the gap between Italian and German yields DE10IT10=RR stood at 115 bps.
Emmanouil Karimalis, macro rates strategist at UBS, said the economic data was not obviously the driver of the fall in bond yields.
"Market liquidity remains relatively weak, and there are no new (major) data or policy updates, making it difficult to assess," he said.
"In the coming weeks, the market's focus will be on European government bond supply."
Banks' preliminary estimates show that investors will have to buy a record amount of euro-zone government bonds for a third straight year in 2025.
The European Central Bank is also fully stepping out of the market, potentially adding upward pressure on borrowing costs. However, further interest-rate cuts could well lead bond yields to fall across the year.
Germany's two-year bond yield DE2YT=RR, which is more sensitive to ECB interest-rate expectations, fell 1 bp to 2.077%, further below last Friday's five-week high of 2.119%.
(Reporting by Harry Robertson, additional reporting by Greta Rosen Fondahn; Editing by Toby Chopra, Susan Fenton and Rod Nickel)
((harry.robertson@thomsonreuters.com;))
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