LONDON, – Euro zone yields edged lower in early trading on Friday, as traders awaited word from U.S. President Donald Trump on what tariffs might apply to Europe, after his surprise decision to slap a 35% duty on major trading partner Canada.
Aside from a drop in the Canadian dollar, the broader financial markets offered a muted reaction to the news, but with Trump’s letter on European Union tariffs likely to land on Friday, investors were on edge.
German two-year yields fell 2 basis points to 1.875, while those on the benchmark 10-year Bund eased 2 bps to 2.64%.
Friday’s cautious mood notwithstanding, Bund yields were heading for a weekly rise of nearly 8 bps, close to its largest since early March, when the German government unveiled the biggest overhaul in its borrowing rules in modern history.
Even with the concern about the hit to the export-driven European economy from U.S. tariffs, the worry about how much extra debt European governments will have to issue to fund their pledges to spend big on defence and infrastructure is winning out right now at the longer end of the bonds curve, analysts said.
“We maintain the view of staying away from the long end in US, Europe and the UK given fiscal concerns. Thus, all our long positions are focused towards the 5-year sector of the curve,” Jefferies strategist Mohit Kumar said in a note.
The Financial Times on Thursday reported Dutch pension funds were set to sell 125 billion euros in government bonds, something Kumar said had been “widely telegraphed” but nonetheless had knocked longer-dated paper.
Dutch pension funds make up 40% of the euro zone private pension industry, making them influential bond investors.
In other markets, Italian 10-year BTP yields were steady at 3.579%, while 10-year French yields were down 1 bp at 3.382%.
In macro events on Friday, European Central Bank board member Piero Cipollone speaks at a panel on Ukraine in Rome.
This article was generated from an automated news agency feed without modifications to text.
