Euro Zone Bond Yields Drop Amid U.S. Tariff Speculations

Euro zone government bond yields decreased after U.S. President Donald Trump refrained from imposing new tariffs, reducing inflationary fears. Germany's 10-year bond yield fell slightly, as did U.S. Treasury yields. The market anticipates a more dovish U.S. rate policy due to the lack of tariff measures.

Euro zone government bond yields experienced a slight decline on Tuesday, spurred by U.S. President Donald Trump's decision against imposing immediate new tariffs. The unexpected move prompted investors to revise their inflation forecasts and adjust expectations regarding U.S. economic policies.

Market participants had initially braced for a potential announcement of trade tariffs by Trump through executive orders, a scenario that could have led to prolonged higher Federal Reserve policy rates. Germany's benchmark 10-year bond yield decreased by 0.5 basis points to 2.48%, after briefly reaching 2.478%—its lowest level since January 8.

U.S. Treasury yields also dipped, with the 10-year yield down 5.5 basis points to 4.55% during early trading in London. Christoph Rieger at Commerzbank noted the significant impact of Trump's trade policies on various markets, including the dollar, equities, and bonds. However, the easing of inflation fears positively affected U.S. Treasuries, while the reaction in German Bunds remained mixed. Additionally, Italy's risk premium against German yields narrowed to 110 basis points, closing in on its tightest margin since October 2021.

(With inputs from agencies.)