Bund yield at one-year low on Ukraine, payrolls caution

Reuters
The curve of the German share price index DAX board at the Frankfurt stock exchange
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The curve of the German share price index DAX board is pictured at the Frankfurt stock exchange May 2, 2014. REUTERS/Remote/Stringer

By Jamie McGeever

LONDON (Reuters) - Global markets traded cautiously on Friday as uncertainty ahead of U.S. employment figures and tensions in Ukraine pushed the yield on 10-year German Bunds to their lowest in a year.

The move into the relative safety of government bonds, also including higher-yielding peripheral euro zone paper that pushed returns on Spanish 10-year debt to a multi-year low, came despite upbeat corporate merger and acquisition activity and earnings.

The big data focus is the U.S. April nonfarm payrolls report. Economists predict jobs growth of 210,000 and a fall in the unemployment rate to 6.6 percent.

But first quarter U.S. growth estimates are being cut following weak construction data on Thursday to the point that the world's largest economy might actually have contracted.

That, and an escalation in violence in eastern Ukraine between government forces and pro-Russian separatists, weighed on investor sentiment.

European stocks failed to get a boost from U.S. drugmaker Pfizer (PFE.N) raising its offer for Britain's AstraZeneca (AZN.L) or a forecast-busting profit from Royal Bank of Scotland (RBS.L) that lifted shares in the 81 percent state-controlled bank by 11 percent.

"People are a bit nervous about payrolls. Last month there was so much hype about it and it came out below expectations. They don't want to get caught out twice, so they are hedging their positions," said Michael Hewson, senior markets strategist at CMC Markets in London.

Hewson also noted that many European and U.S. indices are at or close to record highs so investors are reluctant to chase them higher, especially ahead of a long holiday weekend in Britain.

At 4 a.m. EDT, the FTSE Eurofirst 300 index of leading European shares was down 0.1 percent at 1353 points (.FTEU3) and Germany's DAX (.GDAXI) was down 0.2 percent at 9585 points. Britain's FTSE 100 index (.FTSE) was flat at 6807 points and France's CAC 40 (.FCHI) down a third of one percent at 4471.

In Asia, the MSCI's broadest index of Asia-Pacific shares outside Japan was up 0.4 percent. China's markets were closed on Friday.

U.S. stock futures pointed to a flat open on Wall Street.

Two corporate stories grabbed the headlines in Europe. Pfizer raised its bid for AstraZeneca to 50 pounds a share, valuing the UK drugmaker at 63 billion pounds ($106 billion), and RBS posted a 1.6 billion pounds profit in the first quarter.

CALMER CURRENCIES

Germany's 10-year government bond yield slipped to 1.45 percent and the 30-year U.S. bond yield was 3.43 percent. Late on Thursday it fell as low as 3.4 percent.

Spain's 10-year yields fell as low as 3 percent, their lowest since September 2005 and close to the lowest ever.

Currency markets were calmer, with the dollar well supported ahead of the U.S. payrolls report but major currency pairs trading in tight ranges.

The euro slipped 0.1 percent to $1.3853, and the dollar rose 0.1 percent against the yen to 102.45 yen.

In the commodities markets, oil remained top-heavy after slipping Thursday on disappointing Chinese manufacturing activity and data showing U.S. crude stocks rose last week to their highest level since 1982.

U.S. crude futures brushed that aside, however, and rose 0.4 percent to $99.487 a barrel.

London copper was on track to log its biggest weekly loss in seven weeks, weighed by the Fed's decision this week to continue tapering its stimulus, which had provided the commodity markets with liquidity.

But in tandem with oil, three-month copper on the London Metal Exchange recovered ground in early European trading to rise 0.2 percent to $6,657.00 a metric ton (1.1023 tons). Copper prices have dropped about 1.6 percent this week.

(Reporting by Jamie McGeever; Editing by John Stonestreet; To read Reuters Global Investing Blog click on http://blogs.reuters.com/globalinvesting;

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