European Bond Yields Rise Amidst Tariff Tensions and Fiscal Concerns

Euro zone yields experienced an uptick on Friday as traders nervously awaited U.S. President Trump's tariff decision concerning the European Union. This follows his unexpected action imposing a 35% duty on Canada, a key trading partner. The letter detailing these tariff changes is expected to be delivered on Friday.

Evelyne Gomez-Liechti, a multi-asset strategist at Mizuho International, observed that euro zone bond yields reflected overnight developments in the U.S. yield curve. German two-year and 10-year Bund yields climbed, indicating market apprehensions. Meanwhile, European equities exhibited weakness amidst persistent uncertainty.

Despite apprehensions about the EU's export-driven economy facing U.S. tariffs, analysts noted that the greater concern revolves around additional European government debt to finance commitments in defence and infrastructure. Mohit Kumar from Jefferies emphasized caution in longer-term bonds due to fiscal issues, a sentiment echoed by Dutch pension funds planning significant bond sales.

(With inputs from agencies.)