Safe-haven German Bund prices fell on Friday, driving yields higher, as expectations that a trade deal between the United States and the UK could pave the way for similar tariff agreements boosted appetite for riskier assets.
Markets expect trade tensions to hurt economic growth in the euro area, potentially forcing the European Central Bank to cut interest rates further.
US President Donald Trump and British Prime Minister Keir Starmer announced on Thursday a limited bilateral agreement that leaves Trump’s 10% tariffs on British exports in place and lowers prohibitive US duties on British car exports.
Trump said he expected substantive negotiations with China this weekend and predicted that US tariffs on Beijing of 145% would come down.
Germany’s 10-year yield, the euro area benchmark, rose 4.5 basis points (bps) to 2.565%, its highest since April 14.
German bond yields at three week highs as investors await debt sales
Money markets priced in an ECB deposit facility rate of 1.67%.
They had indicated a depo rate below 1.55% in mid-April as the ECB suggested it was ready to cut rates in response to the potential adverse economic impact of US tariffs.
German 2-year yields, more sensitive to European Central Bank policy rates, were up 3 bps at 1.80%.
Italy’s 10-year yield rose 4 bps to 3.62%, leaving the spread over Germany’s Bund yield - a market gauge of the risk premium investors demand to hold Italian debt - at 101 bps.
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