European bond market steady as Trump tariff concerns ease

LONDON: Euro zone bonds steadied on Thursday with longer-dated bond yields pulling back slightly while shorter-dated ones inched higher after an easing in geopolitical tensions and Japanese bond market turmoil.

A plunge in Japanese bonds, as well as US President Donald Trump’s threats to impose tariffs as leverage to seize Greenland contributed to a global bond selloff on Tuesday, particularly in longer-dated bonds.

However, Trump abruptly changed stance and Japanese government bonds have also rallied for the last two sessions.

That has helped at least to put a floor under euro zone bond prices.

Germany’s 10-year yield, the euro zone benchmark, was last steady at 2.8791 percent after edging down earlier in the session, after rising for the previous five sessions.

Yields on super-long 30-year German debt, which had risen more sharply earlier in the week, fell around 1 bp to 3.494 percent, while the two-year yield was up around two bps at 2.109 percent

Those “bull flattening” moves in market parlance are a reversal of the “bear steepening” situation earlier in the week when longer-dated yields rose while shorter-dated ones held steady or even fell, as worries about the impact of US tariffs and a possible response by the EU weighed.

The de-escalation over tariffs means “concerns are dialled back on euro zone inflation and GDP growth. This neutralises the ‘bear steepening’ trades in Treasuries and (German) Bunds,” analysts at Societe Generale wrote in a note.

A less tumultuous Japanese government bond market added to the calmer mood. Super-long-dated Japanese government bond yields dropped around 6 basis points on expectations that the finance ministry could take some measures to contain further rises in yields.

The Bank of Japan is set to announce its latest interest rate decision on Friday, but is widely expected to leave the rate unchanged. Other euro zone bonds slightly outperformed the German benchmark on Thursday, again reversing the moves earlier in the week.