Turbulent Week in Eurozone Bonds Amid German Fiscal Overhaul

Euro zone government bonds experienced a sharp sell-off, driven by Germany's fiscal rule changes and weak factory data. Investors awaited U.S. job figures amid rising yields and economic uncertainty. The yield on Germany's 10-year bond dropped, reflecting market reactions to fiscal and monetary policies in Europe.

Euro zone government bonds faced a turbulent period as a sharp sell-off subsided on Friday following Germany's announcement to overhaul its fiscal rules. This prompted the largest two-day fall in Bunds since the 1970s. Investors remained on edge, anticipating crucial U.S. employment data while grappling with Germany's disappointing industrial orders for January.

Germany's 10-year bond yield, a benchmark within the euro zone, declined by 5 basis points to 2.834%. "A memorable week is drawing to a close, allowing markets to take stock of the seminal changes in German fiscal politics as well as tariffs and the European Central Bank," commented Michael Leister from Commerzbank. The yield had previously surged 30 basis points on Wednesday following Germany's fiscal announcement, and another 10 basis points on Thursday after an ECB rate cut.

Looking ahead, Pooja Kumra of TD Securities anticipates a slight decrease in Bund yields, with expectations to trade within the 2.4%-2.7% range. Meanwhile, U.S. Treasury yields reached a new low for the year amid weak manufacturing data, as trade uncertainties loom large. Italy's bond market also mirrored the turmoil, affecting borrowing costs across the euro zone.

(With inputs from agencies.)