EU yields rebound on electronics tariff telief, lower risk premiums
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Euro area government bond yields moved higher on Monday, reversing part of Friday’s declines, as global risk sentiment improved following the U.S. decision to exclude smartphones and computers from steep import tariffs. The move temporarily allayed investor concerns over trade-related downside risks to global growth and supported a repricing across core and peripheral eurozone debt.
The German 10-year yield, the region’s benchmark, rose 4.5 basis points to 2.57%, recovering from a 5.5 bps drop at the end of last week. The shift reflects a partial unwind of safe-haven positioning that had intensified amid uncertainty surrounding the White House’s trade stance. While President Trump’s messaging remained non-committal—stating that tariffs on electronics may still be introduced—markets interpreted the current reprieve as a signal of policy moderation, at least in the near term.
Italian BTPs outperformed, with the 10-year yield stable at 3.81%, aided by S&P’s upgrade of Italy’s sovereign credit rating to BBB+ from BBB. The yield spread between 10-year Italian and German bonds narrowed to 120 basis points, indicating increased investor appetite for peripheral risk in a less volatile macro environment.
Short-end rates also adjusted, reflecting marginally tighter expectations for future ECB action. The 2-year German yield rose 4.5 bps to 1.80%, reversing from last week’s low of 1.623%, its lowest since October 2023. Money markets are now pricing the ECB deposit facility rate at 1.73% for December, slightly higher than the 1.68% priced on Friday but still below the 1.90% expected before Trump’s April 2 tariff announcement. This illustrates a partial normalization of rate expectations following last week’s aggressive risk-off rebalancing.
In the U.S., 10-year Treasury yields fell 3 bps to 4.46%, continuing a technical correction after last week’s violent repricing—the largest weekly rise in more than 20 years—driven by trade-driven market dislocation and liquidity strain.
In conclusion, the relief rally in eurozone bonds highlights the sensitivity of global fixed income markets to geopolitical developments and headline risk. While yields are climbing on improved sentiment, the sustainability of this move depends on the evolution of U.S. trade policy and its spillover effects on inflation expectations, growth, and central bank trajectories. Traders should monitor the ECB forward curve, credit spreads, and U.S. policy communication for further signals on the path of rates and risk premia in the euro area.
The German 10-year yield, the region’s benchmark, rose 4.5 basis points to 2.57%, recovering from a 5.5 bps drop at the end of last week. The shift reflects a partial unwind of safe-haven positioning that had intensified amid uncertainty surrounding the White House’s trade stance. While President Trump’s messaging remained non-committal—stating that tariffs on electronics may still be introduced—markets interpreted the current reprieve as a signal of policy moderation, at least in the near term.
Italian BTPs outperformed, with the 10-year yield stable at 3.81%, aided by S&P’s upgrade of Italy’s sovereign credit rating to BBB+ from BBB. The yield spread between 10-year Italian and German bonds narrowed to 120 basis points, indicating increased investor appetite for peripheral risk in a less volatile macro environment.
Short-end rates also adjusted, reflecting marginally tighter expectations for future ECB action. The 2-year German yield rose 4.5 bps to 1.80%, reversing from last week’s low of 1.623%, its lowest since October 2023. Money markets are now pricing the ECB deposit facility rate at 1.73% for December, slightly higher than the 1.68% priced on Friday but still below the 1.90% expected before Trump’s April 2 tariff announcement. This illustrates a partial normalization of rate expectations following last week’s aggressive risk-off rebalancing.
In the U.S., 10-year Treasury yields fell 3 bps to 4.46%, continuing a technical correction after last week’s violent repricing—the largest weekly rise in more than 20 years—driven by trade-driven market dislocation and liquidity strain.
In conclusion, the relief rally in eurozone bonds highlights the sensitivity of global fixed income markets to geopolitical developments and headline risk. While yields are climbing on improved sentiment, the sustainability of this move depends on the evolution of U.S. trade policy and its spillover effects on inflation expectations, growth, and central bank trajectories. Traders should monitor the ECB forward curve, credit spreads, and U.S. policy communication for further signals on the path of rates and risk premia in the euro area.