Europe Bonds Fall as Growth Data Keep Recovery Prospects Intact

(Bloomberg) -- European bonds slid as a pick-up in euro-area growth kept the prospects for a global economic recovery alive.

Yields on benchmark German debt and the euro rose to the highest in a week after an advance reading of euro-zone growth for the first quarter beat expectations at 1.2 percent. Haven bonds had gained earlier in the day after a slowdown in Chinese manufacturing damped expectations for a pick-up in that could feed through to Europe and the U.S.

This year’s rally in global bond markets has stalled in April on signs of economic green shoots. Money markets are still pricing in the European Central Bank adding more stimulus and an interest-rate cut by the Federal Reserve this year.

“Euro-area data this morning shows some signs of improvement and have helped push 10-year bund yields back into positive territory,” said Francis Diamond, a fixed-income strategist at JPMorgan Chase & Co. The data also supports the bank’s view that the bund yield curve will steepen, he said.

Yields on 10-year German bonds rose three basis points to 0.03 percent, rebounding after turning negative last month. Equivalent Italian yields rose four basis points to lead the sell-off in Europe, while the euro rose 0.3 percent to $1.1214. Treasury yields erased an earlier drop, with the market’s attention next turning to a Fed meeting starting Tuesday.

To contact the reporter on this story: James Hirai in London at jhirai3@bloomberg.net

To contact the editors responsible for this story: Ven Ram at vram1@bloomberg.net, Neil Chatterjee, Anil Varma

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