German bond yields break three-day falling streak as trade talks watched

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Benchmark German bond yields ended a three-day falling streak and drifted higher on Thursday as investors took profits after a rally, although concern over whether the US and China would sign a trade deal this year capped a spike in yields.

China has invited US trade negotiators for a new round of face-to-face talks in Beijing amid continued efforts to strike at least a limited deal, the Wall Street Journal reported on Thursday citing unnamed sources.

Despite waning expectations of a trade deal dealing a body blow to risky assets worldwide, perceived safe-haven bond yields rose across the board.

“Frankly this move higher in bond yields is a bit puzzling as we think the prospects of a trade deal have receded substantially and we should see another leg down in the global bond rally,” said Sergio Capaldi, a fixed income strategist at Intesa Sanpaolo.

The completion of a phase one of the trade deal may slide into next year, trade experts and people close to the White House said, as Beijing presses for more extensive tariff rollbacks and the US counters with heightened demands of its own.

Yields were broadly higher across the euro-area following slightly higher US Treasury yields overnight.

German 10-year bond yields, considered widely as a benchmark in the euro area, rose more than 1 bps to -0.3390 percent, rising above a three-week low of -0.3840 percent hit on Wednesday.

An overnight rise in the ESTR rate, the eurozone’s new benchmark interest rate, also weighed on sentiment.

Wednesday’s spike in the ESTR rate was the biggest daily jump in the benchmark money market interest rate since it was launched by the European Central Bank at the start of October.

Global benchmark bond yields took the Fed’s release of the minutes of the end-October policy meeting in its stride which showed an increasingly divided central bank that decided to hit pause in its easing cycle following a rate cut at the meeting.

Traders will watching for a flash eurozone consumer confidence index later on Thursday. Economists polled by Reuters expected the index to show a slight improvement to -7.3 in November from -7.6 in October.