Euro zone yields hit multi-month highs after strong U.S. jobs data

(Updates after U.S. jobs data)

Jan 10 (Reuters) -

Euro zone government bond yields rose to new multi-month highs on Friday after data showed the U.S. economy added far more jobs than expected in December, casting further doubt on the number of Federal Reserve rate cuts this year.

Germany's 10-year bond yield rose 7 basis points (bps) to 2.597% after the data, its highest since July, having traded around 3 bps higher beforehand.

The size of the U.S. economy and importance of the dollar means American data and expectations about Fed rate cuts heavily influence other markets.

The benchmark 10-year U.S. Treasury yield, which sets the tone for borrowing costs around the world, rose 10 basis points to 4.79%, the highest since November 2023. Yields rise as prices fall and vice versa.

Data on Friday

showed the U.S. economy added 256,000 jobs in December, up from 212,000 in November and well above expectations for a 160,000 increase. The unemployment rate fell to 4.1%, from 4.2%.

Traders now see

just one

reduction from the Fed this year, coming in June, according to money market pricing. Before the report they had seen the Fed cutting as early as May and saw about a 50% chance of a second rate cut by year-end.

In Europe, markets slightly trimmed their bets on ECB rate cuts this year by about 5 bps. The ECB is still expected to cut by more than 90 bps in 2025, reflecting the bloc's much weaker economy.

Germany's 2-year bond yield, which is sensitive to ECB rate expectations, rose 6 bps to its highest since November at 2.297%.

Bond yields around the world have risen this week as markets have reconsidered the outlook for central banks, with UK debt

particularly hard hit

as investors focus on the country's public finances.

"Good news for the strength of the economy and bad news for those hoping for interest rate cuts, as inflation will stay bang at the top of the Fed's agenda now," Neil Birrell, chief investment officer at Premier Miton Investors, said of the data.

"The jump in bond yields looks set to continue." (Reporting by Harry Robertson, editing by Gareth Jones and Toby Chopra)