Bond traders are eyeing a return to a type of trade that left them battered earlier this year - betting on yield curves returning to a more normal shape as slowing economies force central banks to cut interest rates. The shape of the yield curve has been in the spotlight over the last week, with U.S. and European 10-year bond yields rising sharply compared to their shorter-dated peers. Many investors say the big rush into such wagers will come when central banks look poised to cut interest rates to bolster growth.
It fell 23 bps last week as data showed that euro zone inflation cooled more than expected in May. Analysts said a few factors were likely pushing up euro zone bond yields on Monday, including Friday's strong U.S. jobs report which kept the pressure on the Federal Reserve to raise interest rates at least one more time from their current 5% to 5.25% level. "Employment in the U.S. remains strong and the Fed's pause is likely to be challenged for as long as it will be the case," said Florian Ielpo, head of macro at Lombard Odier Asset Management.