Rising Fiscal Spending Rocks Eurozone Bonds Amid US Tariff Tensions

Euro area long-dated government bonds faced significant selling pressure on Friday, spotlighting renewed concerns over rising fiscal spending. Investors eagerly anticipated key U.S. jobs data expected later in the session, which might signal the Federal Reserve's direction on rate cuts.

The evolving U.S. economic landscape influenced market speculation, with a 45% chance priced in for a Federal Reserve rate cut in September. In response, Germany's 10-year bond yield, serving as the euro zone benchmark, rose by 3 basis points to 2.70%, while its 30-year counterpart increased by 3.5 basis points to 3.21%.

Amidst economic reforms, U.S. tariffs imposed by President Trump on major trading partners further strained global trade dynamics. Economies like the EU now face substantial tariffs, impacting export levels. Meanwhile, the European market recalibrated expectations for European Central Bank rate adjustments following remarks deemed as hawkish from Federal Reserve Chair Jerome Powell.

(With inputs from agencies.)