BY STEFANO REBAUDO
Euro area benchmark Bund yields hit a fresh one-month high and markets reduced bets on European Central Bank interest rate cuts on Monday as less severe trade and geopolitical tensions eased concerns about economic growth.
Speaking after talks with Chinese officials in Geneva, US Treasury Secretary Scott Bessent told reporters the two sides had agreed on a 90-day pause on measures and that tariffs would come down by over 100 percentage points to 10 percent.
On the geopolitical front, Ukrainian President Volodymyr Zelenskiy said he would agree to meetRussian President Vladimir Putin in Turkey on Thursday, while a fragile ceasefire held between India and Pakistan.
Germany’s 10-year yield, the euro area’s benchmark, rose 6.5 basis points (bps) at 2.62 percent, after hitting 2.631 percent, its highest level since April 11.
Money markets priced in an ECB deposit facility rate of 1.75 percent by year-end, returning a few bps above levels seen in mid-April before the European Central Bank suggested it was ready to cut rates in response to the potential adverse economic impact of US tariffs. They had indicated a deposit rate below 1.55 percent on April 25 and at 1.67 percent late Friday.
Remarks from ECB board member Isabel Schnabel also supported a reduction of bets on future rate cuts.
The ECB should stop cutting borrowing costs as turmoil in the global economy is fuelling price pressures and inflation was at risk of exceeding the bank’s 2 percent target in the medium term, Schnabel said on Friday.
Here are the key calls on the trade war from Holger Schmieding, chief economist at Berenberg: Trump will do deals; the worst of his trade wars could be over within two months from now; US tariffs will likely stay significantly higher than they were before Trump’s second term.
