Global Bonds Jump as Weak European Data Boosts Rate-Cut Bets

Bonds surged after business activity across Europe encountered an unexpected setback, prompting traders to amp up wagers on monetary easing.

The yield on Germany’s benchmark 10-year bonds fell six basis points, dragging the rate on US Treasuries lower, after manufacturing and services PMI readings for Europe’s two biggest economies fell short of expectations. Markets moved to price a higher chance of two additional rate cuts from the European Central Bank this year, after separate index for the whole of the euro-zone also dropped more than forecast in June.

With the easing cycle now underway in the euro area and a number of other major developed-market economies, investors are trying to assess how quickly those policymakers will cut again, and when other central banks — including the Federal Reserve — will join in.

“The global rate-cutting cycle is likely to gather momentum in the second half,” said Mark Haefele, chief investment officer for global wealth management at UBS Group AG. “We expect bond yields to fall as the market shifts focus from the timing of the first Fed rate cut to considering how far rates might fall.”

traders raise bets

Traders now see a second ECB cut by October and an 80% chance of a third this year, up from about 65% on Thursday.