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Germany's 10-year bund yields fall to one-month low

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Germany's 2-year bund yields at lowest since November 2022

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Markets are increasing bets of ECB rate cut in April

(Adds details, comments and updates moves)

By Yadarisa Shabong

April 4 (Reuters) - Euro zone government bond yields

headed for their largest weekly drop since July 2024 on Friday

as investors sought safe havens after far-reaching U.S. tariffs

darkened the outlook for the global economy and deepened fears

of a recession.

Countries around the world threatened retaliation after U.S.

President Donald Trump announced new tariffs, feeding

expectations for a global downturn and sharp price hikes in the

world's biggest consumer market.

That caused a sell-off in stocks as investors sought the

relative safety of government bonds.

The German 10-year bond yield, the benchmark for

the euro zone bloc, fell 10 basis points to 2.541%. Yields were

set for a weekly decline of 18 bps, the most since late July

last year.

Italy's 10-year yield was down 6 basis points at

3.71%, and the gap between Italian and German 10-year bond

yields widened to 116 bps.

The French 10-year yield fell 7 bps to 3.297%.

All three 10-year yields continued their slide from Thursday

and were at their lowest since early March, before Germany

announced its massive spending and fiscal plans that drove euro

zone bond yields higher.

'SYMBOLISM'

Kenneth Broux, senior strategist, foreign exchange and

rates, at Societe Generale, described the German bonds' move

back to levels before Berlin's spending plans as "symbolic" as

Europe's potential growth story has been overshadowed by U.S.

tariffs.

"When the dust will settle on this, you would expect yields

to find a base and to start grinding higher again because the

outlook, besides the tariff story, what Germany is doing with

its economy favors higher nominal yields over time," he said.

"But that's not the short term story. It's been overshadowed

by the tariffs. How much is it going to take off European

growth? What does it mean for the ECB and I think that's what

we're trying to find out." Broux said.

German industrial orders stabilised in February, data showed

on Friday and January's drop was revised to be less steep,

showing that Germany's industrial sector slump could have

bottomed out, but the recovery may be slow as U.S. tariffs start

to have an effect.

Germany's two-year bond yield, which is more

sensitive to European Central Bank rate expectations, hit its

lowest since early November 2022 and was last down 8 bps at

1.849%.

Markets are pricing in a more than 70% chance of a

quarter-point rate cut this month and see the main rate of 1.75%

by the end of the year, implying three more cuts by the ECB.

Markets also have an eye on U.S. non-farm payrolls data

later in the day, which is expected to show a slowdown in jobs

growth in March.