Germany’s 10-year Bund yield fell to 2.35% on Monday, nearing a five-week low, as investors turned their attention to US tariff risks and deflationary pressures in the Eurozone.
Germany 10-year bund yield falls on Monday
President Trump announced new 25% tariffs on steel and aluminum imports and vowed reciprocal duties on countries taxing U.S. goods. In response, German Chancellor Olaf Scholz warned that Europe would retaliate "within an hour" if the U.S. imposes tariffs on the EU, raising concerns of a renewed transatlantic trade war that could weigh on economic growth. The tariff tensions unfolded against the backdrop of a tense pre-election debate, where Scholz defended his leadership against criticism from conservative challenger Friedrich Merz, who accused him of mismanaging Germany’s economy amid sluggish growth and rising fiscal pressures. The looming European Parliament elections and growing discontent over economic stagnation have added to political uncertainty, further weighing on investor sentiment.
Focus on ECB moves
Meanwhile, markets continued to adjust their expectations for the European Central Bank's monetary policy. Traders priced in a 1.89% ECB deposit rate for December, reflecting expectations of gradual rate cuts as inflation cools. Eurozone inflation eased to 2.5% in January, with core inflation holding steady at 2.7%, reinforcing speculation that the ECB may shift toward a more accommodative stance later in the year.
Reaction to German data
The bond market also reacted to weak economic data from Germany, as industrial production unexpectedly contracted for the fourth consecutive month, underscoring concerns about a prolonged downturn in Europe's largest economy. Additionally, uncertainty over energy prices and global supply chains remains a key risk factor, with investors closely watching upcoming economic indicators and central bank guidance for further direction.
