Euro Zone Bonds Rebound Amid New Trade Deal Insights

In a significant shift, Euro area government bond yields declined on Monday following the announcement of a U.S.-EU trade agreement. The new deal imposes a 15% U.S. import tariff on most European Union goods, aligning with market expectations articulated by economists.

This development, coupled with a moderately hawkish stance from the European Central Bank (ECB), led investors to adjust their forecasts for future rate cuts. Last week, there was a mere 60% probability of a 25 basis points rate cut by December. The ECB's comments post-meeting, however, may have recalibrated expectations about the continuation of rate reductions.

Amidst a flurry of global central bank policy meetings, bond markets reacted cautiously. Germany's 10-year government bond metrics dipped by 2 basis points to 2.70%, signaling a contrast to prior upward trends. Similarly, Italian yields dropped, narrowing spreads indicating mitigated investment risks.

(With inputs from agencies.)