Euro Zone Bond Yields Decline Amid U.S. Tariff Threat

Euro zone government bond yields fell as investors shifted to safe-haven assets following U.S. President Trump's tariff threats. European Union ambassadors aim to deter U.S. tariffs while preparing retaliatory measures. The U.S. bond market reached its highest yield since September amid mixed economic data.

Euro zone government bond yields edged lower on Monday as investors gravitated towards safe-haven assets. This shift came in response to U.S. President Donald Trump's threats of imposing additional tariffs on eight European nations unless the U.S. was permitted to purchase Greenland.

On Sunday, European Union ambassadors reached a consensus to ramp up efforts to dissuade Trump from implementing the tariffs. They are also gearing up for potential retaliatory actions should these duties come into effect. Germany's 10-year yields dipped 2 basis points (bps) to 2.82%, following a 1.3 bps rise last week. Meanwhile, the U.S. 10-year Treasury note's yield climbed 7 bps to 4.233% on Friday, its highest level since September 3, amidst mixed economic indicators and pressure from the White House on the Federal Reserve to lower interest rates.

Monday saw a closure of the U.S. market in observance of Martin Luther King Jr. Day, and consequently, German 2-year yields, which are particularly reactive to monetary policy rate expectations, decreased by 4 bps to 2.08%. Italian 10-year government bond yields decreased by 0.5 bps to 3.43%, with the yield gap against German Bunds increasing to 58.50 bps. This followed a previous narrowing to 53.50 bps late Friday, marking its closest margin since August 2008. Similarly, Spain, Portugal, and Greece saw their yield spreads against Bund yields expand from near two-decade lows.

(With inputs from agencies.)