Euro zone bond yields fell as risk appetite dwindled on Friday, with further cases of coronavirus boosting safe-haven assets.
The death toll in mainland China reached 636 by Thursday and more than 31,000 confirmed cases, China’s National Health Commission said.
“The reason that fixed-income is looking firmer… is the reaction formation from stock markets overnight with losses there in the face of signs that the spread of the virus is not so far showing signs of slowing,” DZ Bank strategist Andy Cossor said.
The pan-European stocks benchmark STOXX 600 was down 0.4% after four straight days of gains.
“If you get bad coronavirus death numbers out of China over the weekend, which would be bad for risky assets, you can’t get in and out of the market when it’s closed,” Cossor said of investor demand for bonds on Friday.
Most 10-year government bond yields fell 2 basis points, with Germany’s benchmark at -0.38%.
The Bund is set to have its worst week in a month, with yields up 6 basis points this week and after reaching three-and-a-half-month lows of -0.447% at the start of the week, as Chinese authorities stepped up measures to relieve pressure on the economy.
China’s economic activity is expected to recover once the virus is brought under control, a deputy governor of the country’s central bank said on Friday.
Greek government bonds were the clear out-performer, with the 10-year yield down another 5 bps to 1.10%, after hitting record lows on Thursday on optimism after the euro zone bailout fund waived a compulsory payment due from Cyprus.
In Europe, Germany’s industrial output registered its biggest drop in more than a decade in December, revised data showed. That followed an unexpected decline in industrial orders for December.
“The day’s focus is on the U.S. payroll number,” said TD Securities strategist Pooja Kumra.
The market could also be trading cautiously ahead of the data due at 1330 GMT, she said.
A Reuters poll forecast a pick-up in January, but focus is on a revision of data from April 2018 to March 2019. Any steep downgrade for that period would suggest a significant slowdown in job growth this year.
Later on Fitch is scheduled to publish its review of Italy’s credit rating, which stands two notches above junk at BBB, with a negative outlook. Analysts expect the review to be a non-event.
“The key points on which Fitch’s negative outlook is based are Italy’s high public-debt/GDP ratio (which is close to 135%), the country’s low growth trend and its elevated political uncertainty. None of these aspects have changed meaningfully since Fitch’s last review in August 2019,” UniCredit analysts said in a note.