German Bonds Tumble: Impact of U.S. Trade Policy

German bond yields experienced their most significant weekly drop since mid-April, spurred by worries about U.S. trade policy's long-term economic effects. The yield on Germany's 10-year government bond fell by 5 basis points over the week, impacted further by the potential for continued policy, and economic stagnation observed on Thursday.

The market remained largely indifferent to German inflation data, which showed a slowdown in price growth nearing the European Central Bank's 2% target. Additionally, eurozone bank lending saw a rebound, likely influenced by lower interest rates. Meanwhile, U.S. consumer spending inched upwards in April, while core price pressures observed their smallest annual increase in four years.

Analysts expect the ECB to cut rates soon, with markets pricing a high probability of an imminent rate cut, driven by the need to address economic vulnerability amid ongoing trade tensions. The divergence between Italian and German bond yields narrowed this week, reflecting broader market movements as investors anticipate further ECB decisions impacting eurozone economics.

(With inputs from agencies.)