Euro zone bond yields slightly higher as risk appetite picks up

July 1, 2021: Euro zone government bond yields started the month slightly up on Thursday, with European stocks firmer in early trade as risk appetite perked up.

Final PMI data for the euro area is due throughout the morning but analysts say it is unlikely to move markets, which are more focused on weighing up the possible economic impact of the spread of the Delta variant of COVID-19.

The euro zone's economy still faces risks from virus mutations, the European Central Bank's President Christine Lagarde said, speaking before the European Parliament in her role as chair of the European Union's financial stability watchdog.

But European shares rose in early trading, after a month-end selloff and as investors shook off concerns around inflation.

The euro zone final PMI number is due at 0800 GMT, while the euro zone unemployment rate will be at 0900 GMT.

At 0718 GMT, Germany's benchmark 10-year Bund yield was up one basis point on the day, at -0.19%. French, Spanish and Italian 10-year yields were up by a similar amount.

Inflation data on Wednesday showed euro zone inflation eased in June, in line with forecasts.

A gauge of long-term inflation expectations - the five year, five year inflation forward - was at 1.5863%, having dipped from a three-week high on Wednesday.

Following the Fed's surprise hawkish shift at its June meeting, investors are waiting for two key U.S. data releases: ISM manufacturing data later in the day and payrolls data on Friday.

"How markets react to these readings could determine the behavior of rates over summer," wrote ING rates strategists in a note to clients.

"They should provide a better indicator of how seriously markets have taken the Fed’s hawkish warning shot – we are watching the front-end."

Ahead of Friday's numbers, data showed U.S. private payrolls increased more than expected in June.

In terms of issuance, France is expected to auction 11 billion euros ($13 billion) of longer-dated debt while Spain is expected to tap 4.5 billion euros ($5.3 billion) of 4-, 5-, 7-, and 30-year bonds. ($1 = 0.8445 euros)

Reuters