Germany’s 10-year Bund yield surged past 2.65% in April, rebounding sharply from its lowest level in over a month, as investors dialed back expectations for imminent European Central Bank (ECB) rate cuts.
German bund yield jumps as ECB cut bets ease
The reassessment came in the wake of U.S. President Donald Trump’s surprise move to temporarily pause the implementation of several new tariffs targeting U.S. trading partners — a gesture aimed at cooling escalating trade tensions. However, the truce was partial, as tariffs on Chinese imports were still hiked significantly to 125% from 104%, maintaining pressure on global trade flows and investor sentiment.
In a coordinated but cautious response, the European Union announced a parallel 90-day pause on its own planned tariffs against the United States, signaling a willingness to reopen trade negotiations and avoid a broader economic fallout. While these announcements provided some short-term relief and momentarily eased fears of a global downturn or inflationary spiral, they also introduced a new layer of prolonged policy uncertainty. Investors remain wary that these temporary suspensions may merely delay further confrontation, particularly as the geopolitical backdrop continues to deteriorate.
Impact on eurozone bond markets
This evolving environment has significantly impacted eurozone bond markets, with yields on German Bunds — a benchmark for European sovereign debt — rising in tandem with reduced expectations of aggressive monetary easing by the ECB. Money markets responded by adjusting their forward guidance, now pricing in a year-end ECB deposit facility rate of 1.8%, up from 1.65% the previous day and only slightly below the 1.9% forecast seen the week prior. The repricing reflects a growing belief that the ECB may be more cautious in delivering rate cuts, particularly if inflation remains sticky and trade-driven uncertainty complicates the economic outlook.
Expectations on next ECB moves
At the same time, the probability of a rate cut as early as April fell to 90%, down from full pricing just a day earlier, indicating that even short-term monetary policy bets are being recalibrated. Analysts note that while the ECB still faces pressure to ease policy in response to subdued growth and fragile consumer demand, the latest global developments — including potential spillover effects from U.S.-China trade frictions — could delay or moderate the pace of easing.
As a result, German yields may remain volatile in the near term, reflecting a tug-of-war between expectations for ECB support and fears that persistent geopolitical and trade-related uncertainty could hamper the eurozone’s recovery well into the second half of the year.
