Euro Zone Bond Yields Dip Amid U.S. Trade Tensions

Euro zone government bond yields turned negative this week as investors sought refuge in safer assets, prompted by doubts regarding a U.S.-China trade-war truce. Initially, both euro zone and U.S. yields rose, fueled by rising fears over the fiscal implications of a U.S. tax bill.

Concerns intensified following Moody's downgrade of U.S. credit rating, causing longer-dated Treasury yields to reach an 18-month peak. However, Germany's 10-year yield—the euro zone benchmark—fell in afternoon trading as China's demand for the U.S. to address its chip export curbs spooked markets.

Despite some recovery in bond prices, volatility persisted as investors digested news of potential Federal Reserve rate adjustments and European fiscal policies. Markets priced in adjustments to European Central Bank rates amidst expectations of military-related debt mutualisation across the euro area.

(With inputs from agencies.)