European bond yields decline sharply on tariff shock and growth fears
Press Hub UCapital
Share:
European government bond yields fell on Thursday as markets responded to heightened geopolitical and economic risks following the United States’ announcement of sweeping new tariffs. Germany’s 10-year Bund yield declined to 2.65%, its lowest level in roughly a month, reflecting strong demand for safe-haven assets. The move came after President Donald Trump unveiled a 10% tariff on all imports into the U.S., with even higher rates imposed on specific countries.
The European Union, among the key targets of the new trade regime, now faces total tariff exposure of up to 20%. European Commission President Ursula von der Leyen criticized the move, calling it “a major blow” to global trade and economic stability. She confirmed that Brussels is actively preparing a set of countermeasures, underscoring the likelihood of a retaliatory cycle that could further pressure growth.
Germany, as the EU’s largest exporter and one of the most integrated economies in transatlantic trade, stands to be particularly affected. Approximately 20% of EU exports are directed to the U.S., placing substantial pressure on export-driven economies such as Germany. The reaction in bond markets has been swift, with traders now assigning an 80% probability to a 25 basis point cut by the European Central Bank as early as April. The deposit rate is projected to fall to 1.82% by year-end, down from the current 2.5% and below the previously expected 1.9%.
Yields across the euro area followed suit. French 10-year OATs dropped to 3.4%, while Italian 10-year BTPs declined to 3.8%. The compression in sovereign spreads reflects a coordinated reallocation into core and semi-core eurozone debt, as market participants brace for the potential macro fallout from a protracted trade conflict.
The ECB’s upcoming policy meetings will be closely watched for any shift in tone or acceleration of easing measures, as investors increasingly question the resilience of the eurozone recovery in the face of renewed external headwinds.
The European Union, among the key targets of the new trade regime, now faces total tariff exposure of up to 20%. European Commission President Ursula von der Leyen criticized the move, calling it “a major blow” to global trade and economic stability. She confirmed that Brussels is actively preparing a set of countermeasures, underscoring the likelihood of a retaliatory cycle that could further pressure growth.
Germany, as the EU’s largest exporter and one of the most integrated economies in transatlantic trade, stands to be particularly affected. Approximately 20% of EU exports are directed to the U.S., placing substantial pressure on export-driven economies such as Germany. The reaction in bond markets has been swift, with traders now assigning an 80% probability to a 25 basis point cut by the European Central Bank as early as April. The deposit rate is projected to fall to 1.82% by year-end, down from the current 2.5% and below the previously expected 1.9%.
Yields across the euro area followed suit. French 10-year OATs dropped to 3.4%, while Italian 10-year BTPs declined to 3.8%. The compression in sovereign spreads reflects a coordinated reallocation into core and semi-core eurozone debt, as market participants brace for the potential macro fallout from a protracted trade conflict.
The ECB’s upcoming policy meetings will be closely watched for any shift in tone or acceleration of easing measures, as investors increasingly question the resilience of the eurozone recovery in the face of renewed external headwinds.