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Euro zone government bond yields fell for a fourth consecutive day on Friday as investors braced for the latest monthly U.S. employment report.
Data this week has suggested the all-important U.S. economy is slowing, with job openings, private payroll growth, and manufacturing activity all falling.
But the most important release for markets is the U.S. non-farm payrolls report due at 8:30 a.m. ET (1230 GMT), which is expected to show a slight pickup in employment in August.
Germany's benchmark 10-year bond yield fell 5 basis points (bps) to 2.162%, its lowest since weak U.S. jobs data sparked a stock-market sell-off and rally in bonds in early August. Yields move inversely to prices.
Italy's 10-year yield fell 5 bps to its lowest since December at 3.517%. The gap between Italian and German bond yields stood at 135 bps.
"Today's data focus will be on U.S. payrolls where our economists expect a below consensus print," said Hauke Siemssen, rates strategist at Commerzbank, citing the weak data earlier in the week.
"By now the market is probably already discounting a weaker report."
Adding to the gloomy mood about the economy, data showed German industrial orders dropped 2.4% in July, a much bigger fall than the 0.3% decline expected by economists.
Separate figures showed euro zone second quarter growth was revised lower to 0.2% quarter-on-quarter, from 0.3%.
Germany's two-year bond yield, which is more sensitive to European Central Bank rate expectations, was down 4 bps at 2.253%, the lowest since Aug. 5.
The European Central Bank meets next week and is widely expected to cut rates by 25 bps to 3.5%, although the outlook beyond that is less clear.
Money market pricing shows traders currently expect around 63 bps of cuts between now and 2025, up from around 59 bps at the start of the week.
The size of the U.S. economy and importance of the dollar means American data has an outsized influence on markets and central banks around the world.
"All eyes will be on the U.S. payroll data today," said Mohit Kumar, chief European economist at Jefferies.
"We are looking for a drop in unemployment rate to 4.2%, from 4.3% last time. If our expectations are realised, it should be a relief for markets and lead to higher rates (bond yields) and higher equities."
(Reporting by Harry Robertson; Editing by Jamie Freed and Mark Potter)