German Bund yields approached their 5-week lows on Monday, as investors shifted their focus to possible US tariffs and deflationary risks for the euro area after US President Donald Trump said he would announce reciprocal duties early this week.
Trump said on Sunday he will introduce new 25% tariffs on all steel and aluminium imports into the US, on top of existing metals duties. Germany’s 10-year bond yield, the benchmark for the euro zone bloc, was down 0.5 basis points (bps) at 2.37%.
It hit 2.345% on Wednesday, its lowest level since January 2.
Analysts said import duties against European countries would likely be more significant than the inflationary effect of potential retaliatory moves.
German bond yields set for first weekly fall since May
Money markets priced in an ECB deposit facility rate at 1.89% in December.
They discounted 1.85% after Trump announced tariffs against China, Canada and Mexico early this month.
German two-year yields, more sensitive to European Central Bank rate expectations, fell 0.5 bps to 2.05%.
The yield spread between OATs and Bunds - a market gauge of the risk premium investors demand to hold French debt - was at 71.5 bps after the French Senate approved the 2025 budget last week.
Italy’s 10-year yield was down 0.5 bps at 3.47%, and the gap between Italian and German yields stood at 108 bps.
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