Euro Zone Bonds Steady Amid Middle-East Tensions
Euro zone bond yields were poised for a weekly decline amid the ongoing Israel-Iran conflict. Investors minimized inflation concerns and watched for U.S. involvement signals. German yields fell slightly, while Italy’s yield gap against German Bunds showed significant movement in a volatile week.
Euro zone government bond yields are set to decline this week as investors focus on the ongoing air war between Israel and Iran, now in its eighth day. Despite tensions, inflation appears to be a lesser concern for investors who await clarity on potential U.S. involvement in the conflict.
The White House announced on Thursday that President Donald Trump will make a decision within the next two weeks, increasing pressure on Tehran to enter negotiations. Meanwhile, German 10-year yields, a benchmark for the euro zone, dropped by 2.5 basis points to 2.49%, and are poised to end the week 4.5 basis points lower.
Amid these geopolitical tensions, yield spreads for highly indebted countries such as Italy and France widened when compared to safe-haven German Bunds. Italy's 10-year yields fell by 4.5 basis points to 3.50%, and the Italian yield gap against Bunds narrowed to 100 basis points on Friday, marking its largest weekly increase in a year.
(With inputs from agencies.)
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