By Samuel Indyk and Stella Qiu
LONDON, Oct 2 (Reuters) – Global stocks rose on Friday as high volatility in bond and money markets eased ahead of key U.S. jobs data that could shape expectations for the Federal Reserve’s next policy decision.
In Europe, prices of long-term sovereign bonds rose on the day, although those in the most indebted countries, such as France and Italy, lagged gains in Germany, reflecting growing investor demand for protection against growing fiscal risks.
The German 10-year yield, the euro zone benchmark, fell 6.5 basis points on Friday as investors preferred the relative safety of German bonds compared to their euro zone counterparts. Bond yields move inversely to prices.
In France, the 10-year yield fell 4 basis points to 4.892%, pushing the gap between German and French 10-year yields up to 149 basis points, the highest level since the 2012 euro zone debt crisis.
“I wouldn’t call it a crisis yet, but it looks like it has the potential to be one,” said George Lagarias, chief economist at Forvis Mazars.
“If this lasts a few more weeks, we will be talking about a crisis in the bond market.”
Global bond markets have been subject to a relentless selloff in recent weeks as the U.S.-Israeli war with Iran sent energy prices soaring again, complicating the outlook for inflation and further straining already strained public finances.
Yields on Japan’s long-term bonds rose to multi-decade highs on Friday, while the benchmark 10-year U.S. Treasury yield hit a 24-year high on Thursday, ahead of Friday’s labor market report.
Forecasts center on a gain of 90,000 nonfarm jobs in September, while the unemployment rate is expected to remain stable at 4.1%.
A hot number could revive bets on a second Federal Reserve rate hike this month, currently priced at just 25% after two top policymakers said this week they want more data before deciding what to do next with interest rates. A move in December is still fully priced in.
“With the Fed now myopic and focused on inflation and price pressures, higher wages could prove particularly influential on U.S. rates, Treasuries and the dollar,” said Chris Weston, head of research at Pepperstone.
“So far, risky assets have absorbed the rise in U.S. real yields and long-term nominal Treasury yields remarkably well. However, a sustained increase in the term premium could prove far more problematic.”
European stocks rose in early trading, with the pan-regional STOXX 600 index up 0.8%, although it is still heading for a weekly decline of around 1%. Nasdaq futures rose 0.7% and S&P 500 futures gained 0.4%.
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