Bund yields close to 5-week lows after Trump's new tariffs pledge
By Stefano Rebaudo
Feb 10 (Reuters) - German Bund yields approached their 5-week lows on Monday, as investors shifted their focus to possible U.S. tariffs and deflationary risks for the euro area after U.S. 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 U.S., on top of existing metals duties.
Germany's 10-year bond yield DE10YT=RR, 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.
Money markets priced in an ECB deposit facility rate at 1.89% in December EURESTECBM7X8=ICAP. They discounted 1.85% after Trump announced tariffs against China, Canada and Mexico early this month.
German two-year yields DE2YT=RR, more sensitive to European Central Bank rate expectations, fell 0.5 bps to 2.05%.
The yield spread between OATs and Bunds DE10FR10=RR - 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 IT10YT=RR was down 0.5 bps at 3.47%, and the gap between Italian and German yields DE10IT10=RR stood at 108 bps.
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