Eurozone bond yields fall on recession worries amid tariff turmoil
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European sovereign debt markets rallied on Friday as intensifying worries over a global downturn encouraged investors to seek safety. Yields across the euro area headed for their steepest weekly decline since November 2024, reflecting heightened demand for core government bonds and other defensive assets.
German 10-year Bund yields—commonly seen as the barometer for the eurozone—fell 4.4 basis points to 2.597%, setting them on track for a 15 basis-point weekly drop. Italian 10-year BTP yields also dipped by 3 basis points to 3.739%, while the yield spread between Italy and Germany widened to 114 basis points, underlining diverging perceptions of credit risk.
French OAT yields retreated 2.2 basis points to 3.346%, and the two-year German yield slid by nearly 3 basis points to 1.903%, its lowest level since December. The synchronized decline highlights a renewed focus on capital preservation after sweeping U.S. tariff measures heightened fears of reduced global trade flows and potential recession.
Analysts note that the drop in yields reverses much of the upward pressure seen early last month, when Germany announced ambitious spending and fiscal plans. However, market participants now forecast a roughly 70% probability of a 25-basis-point rate cut from the European Central Bank in April, as policymakers weigh the economic risks posed by escalating trade hostilities.
The pronounced shift into eurozone debt underscores a broader flight to quality, as investors brace for possible retaliatory measures from other economies. As the geopolitical landscape remains fluid, bond traders will be monitoring incoming economic data, central bank communications, and the evolution of global supply chains to gauge whether a more defensive posture remains warranted.
German 10-year Bund yields—commonly seen as the barometer for the eurozone—fell 4.4 basis points to 2.597%, setting them on track for a 15 basis-point weekly drop. Italian 10-year BTP yields also dipped by 3 basis points to 3.739%, while the yield spread between Italy and Germany widened to 114 basis points, underlining diverging perceptions of credit risk.
French OAT yields retreated 2.2 basis points to 3.346%, and the two-year German yield slid by nearly 3 basis points to 1.903%, its lowest level since December. The synchronized decline highlights a renewed focus on capital preservation after sweeping U.S. tariff measures heightened fears of reduced global trade flows and potential recession.
Analysts note that the drop in yields reverses much of the upward pressure seen early last month, when Germany announced ambitious spending and fiscal plans. However, market participants now forecast a roughly 70% probability of a 25-basis-point rate cut from the European Central Bank in April, as policymakers weigh the economic risks posed by escalating trade hostilities.
The pronounced shift into eurozone debt underscores a broader flight to quality, as investors brace for possible retaliatory measures from other economies. As the geopolitical landscape remains fluid, bond traders will be monitoring incoming economic data, central bank communications, and the evolution of global supply chains to gauge whether a more defensive posture remains warranted.