LONDON, Aug 1 (Reuters) - Euro zone bonds started August in muted fashion with Germany's 10-year yield a whisker higher, shrugging off the latest signs of major stress across Europe's manufacturing sector.
Slightly cooler euro zone inflation data and better-than- expected euro zone economic growth figures released a day earlier did little to jolt bond markets out of their recent range.
"Markets are showing signs of summer liquidity as investors take a much deserved break," Mohit Kumar, chief financial economist Europe at Jefferies, said in a note.
"We still have key macro events this week (BoE decision and US payroll data), but market seems content in its view that the central banks are close to the end of their rate hiking policy."
A rapid rise in central bank interest rates in the past 12 months has caused a sharp sell-off in government bonds, but market pricing suggests the European Central Bank might have finished its rate-hiking cycle.
Current pricing indicates a chance of one further rate hike by the end of this year, similar for the U.S. Federal Reserve.
The yield on the 10-year German Bund, the benchmark for the European periphery, was at 2.47%, up nearly one basis point (bp) on the day, and Italy's 10-year yield, the benchmark for the European periphery was up 2 bps at 4.12%.
The day's main scheduled release in Europe showed manufacturing activity across the euro zone contracted in July at the fastest pace since the COVID pandemic cemented its grip on the world, matching earlier flash readings.
Complicating the picture, German unemployment fell unexpectedly in July, showing resilience in the labour market.
U.S. activity data later in the day will also be closely watched.
The shorter end of the European curve was going nowhere fast. The German two-year yield was flat at 3.20% and the Italian two-year yield was down nearly 1 bp at 3.70%.
(Reporting by Alun John Editing by Bernadette Baum)
