LONDON (Reuters) - Euro zone government bond markets sold off but stock markets in the bloc rallied on Friday after a stronger-than-expected U.S. non-farm payrolls report.
The U.S. economy created 313,000 new jobs in February, recording its biggest increase in more than 1-1/2 years, but a slowdown in wage gains pointed to a gradual increase in inflation this year.
“At face value, the February jobs report seems supportive of the goldilocks economic story of continued strong employment gains amidst moderate inflation pressures,” BNP Paribas analysts said in an note, but adding that wage growth will likely pick up.
Euro zone bond yields rose after the data before pulling back slightly. Germany’s 10-year bond yield was last up 1.5 basis points at 0.64 percent DE10YT=RR.
U.S. borrowing costs rose more sharply, and the gap between German and U.S. 10-year bond yields reached its widest in over a year at 226 basis points. DE10YT=RR US10YT=RR
The pan-European STOXX 600 index jumped to a session high, last up 0.5 percent, and Britain's FTSE 100 .FTSE rose 0.3 percent to a session high.
Sterling rose against the dollar after the labour numbers were published, trading up 0.4 percent at $1.3870 GBP=D3. The euro also strengthened slightly against the dollar, and was last up 0.1 percent at $1.2329 EUR=.
Meanwhile, borrowing costs in Spain and Portugal were on track for their biggest weekly fall in at least three months on Friday, a day after the ECB gave up a pledge to increase bond buys if needed but signalled a slow route out of its massive stimulus.
Spain’s 10-year bond yield, at 1.42 percent ES10YT=RR, was set to end the week down around 11 bps — its biggest weekly fall since November last year.
Portuguese bond yields pulled back from Thursday’s six-week low around 1.79 percent PT10YT=RR, but were set for their biggest weekly fall since November, of around 12 bps.
The gap between 10-year Italian IT10YT=RR and German DE10YT=RR bond yields was at 136 basis points, and close to levels hit on Thursday that marked the tightest in two weeks.
Reporting by Dhara Ranasinghe and Abhinav Ramnarayan, additional reporting by Kit Rees and Tommy Wilkes. Editing by Fanny Potkin