Long-dated euro zone bonds sell off; Trump slaps on tariffs

Zawya

5 days ago

LONDON - Thirty-year euro zone government bond yields rose on Friday, swept higher in a sell-off in global longer-dated debt, as investors grow increasingly convinced that interest rates are unlikely to fall much further.
U.S. President Donald Trump's tariffs, while lower than initially threatened for most countries, are widely expected to keep inflation in the euro zone, and elsewhere, from receding much further. Data in the meantime points to the economy holding up, albeit at a slower pace.
German thirty-year yields rose 4 basis points in early trading to 3.22% on Friday, echoing a similar move in 30-year Treasuries, while Italian 30-year yields rose almost 7 bps to 4.464% and French 30-year yields were up 4 bps at 4.177%.
Trump followed through on his threat to impose steep tariffs on exports from dozens of trading partners including Canada, Brazil, India and Taiwan, ahead of a Friday trade deal deadline.
"The long-end in Bunds continues to lack clear direction despite abundant data points, as larger surprises remain absent. The front-end on the other hand weakened, as the figures add conviction to the ECB's base case scenario, leaving curves flatter as markets are increasingly pricing a terminal rate closer to 2%," analysts at Commerzbank said.
Data on Friday from the euro zone includes final surveys of manufacturing activity for July and the all-important U.S. monthly jobs report, which could be instrumental in setting expectations for the near-term direction of interest rates.
Shorter-dated debt got some respite, with two-year Schatz yields up just 1 bp at 1.956%, narrowly below this week's four-month high of 1.965%.
Traders have been gradually eroding their bets on another rate cut this year from the European Central Bank, while the view among economists is starting to point to the next move being a hike at some point in 2026.
Benchmark 10-year Bunds meanwhile, were up 3.2 bps at 2.724%, having ended July up nearly 10%, their third straight monthly increase and the largest since March's 34-bp gain.