Euro Area Bonds React to Trade Tariff Developments

Euro area government bond yields increased as the exclusion of Chinese electronics from U.S. tariffs provided relief to global markets. Despite uncertainties, Germany's yields rose, while Italian bonds outperformed after S&P upgraded its credit rating. U.S. Treasury yields declined amid trade policy unpredictability.

Euro area government bond yields saw an increase on Monday following a drop on Friday, as the exemption of Chinese electronics from hefty U.S. tariffs alleviated global market concerns.

In a move focused on reducing trade tensions, the U.S. excluded smartphones and computers from 'reciprocal' tariffs, offering a lifeline to major tech firms. However, President Donald Trump maintained that tariffs could still be implemented. The benchmark German 10-year yield rose 4.5 basis points to 2.57% after falling 5.5 bps on Friday.

Meanwhile, U.S. 10-year Treasury yields fell by 3 bps to 4.46% after experiencing their largest weekly hike in two decades due to Trump's unpredictable trade actions. Italian bonds outperformed their German counterparts, with the 10-year yield stable at 3.81% following an upgrade of Italy's long-term credit rating by S&P. The yield gap between Italian and German 10-year bonds narrowed to 120 bps. European Central Bank rate expectations shifted slightly with Germany's two-year yield reaching 1.80% after recent fluctuations.

(With inputs from agencies.)