Trade Tensions Shake Eurozone Bond Markets: ECB Rate Cut Anticipated

Eurozone government bond yields fell as U.S. President Donald Trump's tariff announcement stoked fears of a global trade war. Markets are heavily betting on a future rate cut by the European Central Bank, with an 80% chance of a 25 bps cut in April amid dropping bond yields.

Eurozone government bond yields took a hit on Thursday, as global markets reacted to U.S. President Donald Trump's announcement of sweeping tariffs aimed at key trading partners. The move has amplified concerns about a potential trade war that could hamper international economic growth.

Consequently, money markets have increased their bets on future rate cuts by the European Central Bank. Current projections reflect an 80% probability of a 25 basis points policy rate reduction by April, alongside expectations for a depo rate adjustment to 1.82% by December from approximately 1.9%.

The effects are already evident, with Germany's benchmark 10-year bond yield falling almost 8 basis points to 2.648%, its lowest level since early March. Likewise, the more ECB-sensitive 2-year yield decreased by 8.5 basis points to reach a low not seen since December 12 at 1.958%.

(With inputs from agencies.)