Euro zone bond yields fall as investors seek safe havens

Euro zone bond yields, particularly on longer-dated bonds, dipped alongside those of Treasuries on Tuesday as a selloff in tech stocks drove some flows to the safety of government debt. Germany's 10-year bond yield, ‌the benchmark for the euro zone, was last down 1 basis point at 3.46%, having earlier touched a session low of 3.426%, outperforming 2-year bonds, on which yields were roughly unchanged on the day at 3.125%.

Turmoil in bond markets has eased somewhat in the past few sessions, but bonds remain fragile after a ‌selloff in late September and early October that pushed Germany's 10-year yield to 3.65%, its highest since 2009. Helping drive some flows into bonds ‌on Tuesday, in a typical safe-haven move, were renewed jitters in tech stocks. South Korea's tech-heavy KOSPI tumbled more than 5%, while Nasdaq 100 futures shed 0.7%.

"The short-covering gains in Treasuries and (German) Bunds this morning follow a minor hiccup in risk assets and semiconductor names," Societe Generale analysts said in a note. "But positioning for US CPI tomorrow should curb some of ⁠the enthusiasm."

The data ​will be among the last key ⁠releases before the Federal Reserve decides whether to hike interest rates again to contain high prices. While markets do not expect a rate hike this month, a hot print could change ⁠that and send yields higher again.

FRENCH GOVERNMENT BONDS IN FOCUS The rally in bonds was across markets. The benchmark 10-year Treasury yield fell 3 bps to 5.22%, while ​France's 10-year yield fell 6 bps to 4.84% and Italy's dropped 3 bps to 4.55%.

French government bonds have been at the centre ⁠of the recent bond market storm, with investors concerned that political jostling ahead of next year's presidential election may hinder the government's efforts to reduce its high deficit. The spread between French ⁠and ​German debt, a gauge of the premium investors require to lend to France rather than Germany, was last at 138 bps and below the 14-year highs of nearly 160 bps in early October.

Italy's 10-year yield was about 30 bps below France's, hovering around the most since at least the ⁠early 1990s, according to LSEG data. This is a sign investor worries are particularly focused on French debt, and fears of a broader contagion to ⁠the rest of the euro zone have ⁠eased for now.

There were also a few bond auctions for traders to digest, though they were not having a major effect on secondary trading. Italy issued €7 billion ($7.8 billion) across three bonds, and while the yields were at their ‌highest since 2023, they ‌saw good demand.

A German bond auction saw weak demand.