Euro Zone Bonds Tread Water as Markets Await Fed's Next Move

Euro zone government bonds saw a slight decline on Wednesday, as traders worldwide awaited a key policy meeting by the Federal Reserve. This meeting marks the first since U.S. President Donald Trump's early April tariff announcement, which unsettled financial markets.

In the euro area, Germany's 10-year bond yield, regarded as the benchmark, slipped by 2 basis points to 2.51%, retracting from its recent three-week highs. German politics also took center stage after conservative leader Friedrich Merz was elected as chancellor in a subsequent voting round, following an unexpected defeat in the initial attempt. This move sets the stage, as investors closely monitor Merz's policy direction.

The lingering uncertainty stems from Merz's historic March announcement regarding changes to Germany's debt brake and a substantial spending program. Nabil Milali from Edmond de Rothschild Asset Management highlighted doubts surrounding the coalition's ability to implement fiscal policies by 2025. Meanwhile, global markets await the Fed's decision, which could signal future interest rate reductions, affecting bond markets worldwide.

(With inputs from agencies.)