Euro zone bonds rise as higher yields attract buyers, AI concerns bring safety bid
TLT•Euro zone government bonds rallied as a sell-off in technology stocks drew investors toward safety, with Germany’s 10-year yield falling 11 basis points to 3.356%, its lowest in more than five weeks. French and Italian yield spreads over Germany also narrowed.
1. Bond yields fall
Germany’s 10-year yield fell 11 basis points to 3.356%, its lowest level in more than five weeks, as investors moved into government debt after stocks sold off on AI concerns. France’s 10-year yield fell 14 basis points to 4.739%, while its spread over Germany narrowed 4.5 basis points to 137 basis points. Italy’s 10-year spread over Germany tightened 4 basis points to 104 basis points.
2. Fiscal and rate outlook
The bond rally came despite higher-than-forecast U.S. consumer and factory inflation readings. Allianz Global Investors strategist Massimiliano Maxia said fiscal concerns would continue to weigh on government bonds in the medium term, but the firm was tactically increasing exposure to long-term maturities, including France. Money markets priced the European Central Bank deposit rate at 3.18% by late 2027, up from 2.50% currently.
