Euro zone bond yields rise amid U.S. Treasury rebound and defense
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Euro zone government bond yields rose slightly on Wednesday, recovering from their lowest levels in over a week, as investors assessed the impact of potential increases in European defense spending alongside a rebound in U.S. Treasury yields.
The move came after the U.S. House of Representatives advanced President Donald Trump’s tax-cut agenda late on Tuesday, which helped U.S. Treasury yields recover some lost ground. This shift in sentiment also had an impact on European bonds, with Germany’s 10-year Bund yield—the benchmark for the euro zone—rising by one basis point to 2.463% after hitting a low of 2.446% on Tuesday, the lowest level since February 17.
The spread between 10-year U.S. Treasuries and German Bunds widened by 1.8 basis points to 185.6 basis points, after narrowing to multi-month lows earlier in the week. This indicates that U.S. yields are rebounding faster than European counterparts, likely driven by expectations of fiscal expansion under Trump’s proposed tax cuts.
Italian bond yields also saw a modest increase, with the 10-year yield rising by less than one basis point to 3.53%. The spread between Italian and German bonds remained steady at 106 basis points, reflecting continued stability in euro zone sovereign debt markets.
While bond yields remain near recent lows, the outlook is increasingly influenced by geopolitical developments, particularly the potential for increased European defense spending in response to rising geopolitical tensions. Investors will be closely watching upcoming statements from European policymakers, as well as further developments in U.S. fiscal policy, to gauge the direction of bond markets in the near term.
The move came after the U.S. House of Representatives advanced President Donald Trump’s tax-cut agenda late on Tuesday, which helped U.S. Treasury yields recover some lost ground. This shift in sentiment also had an impact on European bonds, with Germany’s 10-year Bund yield—the benchmark for the euro zone—rising by one basis point to 2.463% after hitting a low of 2.446% on Tuesday, the lowest level since February 17.
The spread between 10-year U.S. Treasuries and German Bunds widened by 1.8 basis points to 185.6 basis points, after narrowing to multi-month lows earlier in the week. This indicates that U.S. yields are rebounding faster than European counterparts, likely driven by expectations of fiscal expansion under Trump’s proposed tax cuts.
Italian bond yields also saw a modest increase, with the 10-year yield rising by less than one basis point to 3.53%. The spread between Italian and German bonds remained steady at 106 basis points, reflecting continued stability in euro zone sovereign debt markets.
While bond yields remain near recent lows, the outlook is increasingly influenced by geopolitical developments, particularly the potential for increased European defense spending in response to rising geopolitical tensions. Investors will be closely watching upcoming statements from European policymakers, as well as further developments in U.S. fiscal policy, to gauge the direction of bond markets in the near term.