Euro zone bond yields up as investors exit safe havens after court blocks Trump tariffs

Euro zone government bond yields inched up on Thursday, as investors ditched safe havens for riskier assets after a U.S. federal court blocked most of President Donald Trump's sweeping tariffs. Investors moved away from bonds, gold, and safe-haven currencies such as the yen and Swiss franc after the Manhattan-based Court of International Trade ruled on Wednesday that Trump overstepped his authority by imposing across-the-board duties on imports from the United States' trading partners.

The Trump administration has appealed the ruling, which does not include sectoral levies, and could seek other legal avenues for Trump to impose tariffs. "(The court ruling) removes some uncertainty, but it adds some," said Kenneth Broux, head of corporate research FX and rates at Societe Generale.

Though the news provided a relief boost to stocks and the dollar, he said, the situation nonetheless remained very unpredictable. Germany's 10-year government bond yield, the euro area benchmark, rose 3.5 basis points (bps) to around 2.58%. It fell to around 2.51% on Tuesday, its lowest level since May 8.

"What we are seeing is some dispersion in bond markets," Broux said, with the recent rise in yields highlighting not only supply and demand constraints but also fiscal dynamics. Long-term bond yields have risen this month on growing concern about rising debt levels among big economies such as the United States and Japan.

German 30-year government bond yields edged up nearly 4 bps to around 3.08%, while the 2-year government bond yield, more sensitive to European Central Bank policy rates, rose 2 bps to 1.82%. Markets have fully priced in a 25-bps interest rate cut from the ECB when it meets next week.

They also indicated a deposit facility rate at 1.71% in December, from 1.55% in mid-April. Italy's 10-year yield rose 3 bps to 3.58%, leaving the spread between Italian and German yields around 97 bps.

U.S. Treasury yields also rose on the day, with the yield on the benchmark 10-year Treasury note up over 5 bps to 4.533%.

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