Euro zone bond yields steady but head for weekly fall amid tech rout

By Stefano Rebaudo and Harry Robertson

Nov 6 (Reuters) - Euro zone bond yields were set for a weekly fall as investors sought safety after a dramatic US tech selloff and scaled back bets on European Central Bank rate hikes, although they were little changed on Friday as markets stabilised.

The Nasdaq stock index climbed .NDX as chip stocks regained ground after a technology-led rout triggered by fears that Democratic control of the US Congress could lead to tougher AI regulation.

Oil was on track for a sharp weekly drop as investors bet the Iran conflict would de-escalate after the dramatic election losses for President Donald Trump's Republicans, but lingering supply concerns supported the market.

Germany’s 10-year government bond yield , the euro area benchmark, was flat at 3.25% after earlier touching 3.2075%, the lowest since August 26.

German yields were on track for a 7-basis-point weekly fall, reflecting the bonds' status as a safe-haven asset at times of stress. Yields move inversely to prices.

The tech-heavy US Nasdaq 100 index dropped more than 6% on Wednesday .NDX as investors ditched AI stocks.

"Bonds are actually fulfilling their traditional role here," said Ross Hutchinson, head of euro zone market strategy and economics at Zurich Insurance.

"Treasuries and Bunds in particular have a flight to quality aspect. I think that's quite encouraging from a diversified investor's perspective overall.”

Euro zone yields barely budged after data showed the US economy added far more jobs than analysts expected in October, with nonfarm payrolls rising by 165,000.

Traders have nudged down their bets on European Central Bank rate hikes, in part due to the possible threat to global growth from the AI selloff.

Euro short-term rate (ESTR) forwards implied an ECB deposit rate of around 3.02% by late 2027 on Friday, down from 3.25% at the end of October. Markets also priced in about an 80% chance of a rate hike next month from the current 2.5%.

French bond yields, which have been in the spotlight due to worries about the country's debt levels in recent months, fell 2 basis points (bps) and were set for a 20-bp fall over the week .

The gap between French and German 10-year bond yields narrowed slightly to 152 bps.

The spread recently reached 178 bps, the highest since November 2011, with investors worried about France's ability to put its public finances on a sustainable footing ahead of presidential elections next year.

"Another leg lower in risk assets should keep Bunds supported, but is unlikely to be friendly for peripheral spreads, particularly after the scale of the recent OAT tightening," Evelyne Gomez-Liechti, multi-asset strategist at Mizuho, said.

Italian 10-year yields were flat at 4.344%, with the spread versus Bunds at 108 bps.