The European benchmark German 10-year bund yield fell to 2.45% after briefly surpassing 2.5% on Monday, as investors sought safe-haven assets amid escalating global trade tensions and geopolitical uncertainty.
Germany bond yields retreat from recent highs
A broad risk-off sentiment prevailed after new US tariffs on Canada, Mexico, and China took effect, prompting swift retaliatory measures from Canada and China, including counter-tariffs on key US exports such as agricultural products and industrial goods. The growing trade conflict has heightened concerns about its potential impact on global economic growth, further fueling demand for sovereign bonds.
Meanwhile, European investors continued to assess the likelihood of increased defense spending by EU governments following the latest geopolitical developments. US President Donald Trump’s abrupt suspension of military aid to Ukraine, just days after a public clash with Ukrainian President Volodymyr Zelensky, has raised concerns about Europe’s security landscape. In response, European Commission President Ursula von der Leyen announced plans to strengthen the EU’s defense industry, which could mobilize nearly €800 billion in funding. She also proposed granting member states greater fiscal flexibility for defense investments, alongside €150 billion in loans to bolster military capabilities across the bloc.
ECB set to cut rates again
On the monetary policy front, the European Central Bank (ECB) is expected to cut borrowing costs for the fifth time this week, as inflationary pressures ease and economic growth remains subdued. Market participants are closely watching ECB President Christine Lagarde’s upcoming remarks for signals on the central bank’s future policy path. A more dovish stance could push yields lower, especially if the ECB hints at further easing measures to support the fragile Eurozone economy.
Elsewhere, bond markets are also reacting to shifting rate expectations in the US. While the Federal Reserve has maintained a cautious stance, weaker economic data and trade uncertainties have led to increased speculation that the Fed may pivot toward rate cuts later in the year, adding downward pressure on global yields.
