Eurozone Bond Yields Decline Amid Trade Uncertainty

Eurozone bond yields declined as German inflation data awaited release. The 10-year German bond is down to a three-week low, poised for a weekly drop. Markets predict an ECB rate cut, while U.S. Treasury yields slightly increased. Italian yields fell, narrowing the gap with German yields.

Eurozone benchmark Bund yields were set for a weekly decline, with investors closely watching the upcoming German inflation data. Germany's 10-year bond yield reached a three-week low, poised for a 6.5 basis points weekly drop, amid concerns about the long-term negative effects of U.S. trade policy.

Markets anticipate a 90% chance of a 25 basis points rate cut by the European Central Bank next week. Additionally, projections show the deposit facility rate at 1.67% in December, suggesting the possibility of two rate cuts and an approximately 30% chance of a third. Meanwhile, the 10-year U.S. Treasury yield saw a slight increase despite a recent decline due to soft economic data and a court ruling that blocks most of President Trump's tariffs, raising fears of extended trade policy uncertainty.

In related developments, a federal appeals court has temporarily reinstated the most sweeping of Trump's tariffs. Italy's 10-year yield declined by one basis point to 3.493%, its lowest in nearly three months. The yield gap between Italian and German bonds was at 96 basis points, following a narrow gap of 89.80 basis points on Thursday, the smallest since February 2021.