Euro Bond Yields Surge Amid U.S.-China Trade Tensions Easing

Euro area government bond yields increased as markets re-evaluated potential ECB interest rate cuts, influenced by eased U.S.-China trade tensions. This followed President Trump's softened stance on firing Fed Chair Jerome Powell. Germany and France showed stalled business growth, affecting yield spreads across European nations.

On Wednesday, Euro area government bond yields witnessed an upward trend as markets adjusted forecasts for European Central Bank (ECB) interest rate cuts. This shift followed reassuring gestures from the U.S. administration, which alleviated concerns over a potential trade conflict with China.

The initial trading session saw stable borrowing costs owing to data that indicated stagnating euro zone business growth. Economic activity in Germany and France contracted, contrasting with U.S. President Donald Trump's decision to step back from threats to dismiss Federal Reserve Chair Jerome Powell after days of criticism for maintaining interest rates.

U.S. Treasury Secretary Scott Bessent expressed optimism over declining U.S.-China trade tensions, stating that President Trump was reconsidering challenges deemed unwinnable against China and Powell. Analyst Mohit Kumar anticipated more Trump commentary on the Fed but emphasized the market's temporary relief from diminished immediate risks.

(With inputs from agencies.)