Euro Zone Bond Yields Experience Significant Weekly Drop Amid U.S. Tariff Concerns

Euro zone bond yields saw their largest weekly decline since July 2024, as apprehensions over new U.S. tariffs sparked fears of a global recession. The tariff announcement led to a retreat into government bonds, causing yields in Germany, Italy, and France to drop significantly.

Euro zone government bond yields are poised for their most significant weekly decline since July 2024, as investors seek safety amid concerns over extensive U.S. tariffs that have dimmed the global economic outlook and heightened recession fears. Countries worldwide have threatened retaliation against U.S. President Donald Trump's tariff announcement, escalating expectations for a global downturn and significant price increases in the world's largest consumer market.

This scenario has prompted a shift from stocks to the relative safety of government bonds. Germany's 10-year bond yield, a benchmark for the euro zone, dropped 10 basis points to 2.541%, marking a weekly decline of 18 bps, the largest since late July last year. Italy's 10-year yield fell 6 basis points to 3.71%, widening the yield gap between Italian and German bonds to 116 bps, while France's 10-year yield decreased by 7 bps to 3.297%.

The dip in yields follows a broader downward trend since Thursday, reaching levels unseen since early March, before Germany's substantial fiscal measures propelled euro zone bond yields upward. Societe Generale's senior strategist, Kenneth Broux, termed the German bonds' return to pre-fiscal plan levels as "symbolic," suggesting Europe's growth trajectory is overshadowed by U.S. tariffs. Broux noted that while German industrial orders showed signs of stabilization in February, the full impact of U.S. tariffs on European growth remains uncertain. Additionally, markets are anticipating potential ECB rate cuts, with the two-year German bond yield hitting its lowest since November 2022.

(With inputs from agencies.)