Euro zone bond yields dropped on Wednesday after US President Donald Trump said the end of the war on Iran could be near, a development that would ease traders’ fears about high energy prices driving inflation and interest rate hikes.
Germany’s 10-year yield, the benchmark for the euro zone,dropped to a two-week low of 2.93% in early trading and was last at 2.96%, still down 5 basis points.
Germany’s rate-sensitive two-year yield also fell 5 bps to 2.57%, and traders also reduced the amount of European Central Bank rate hikes they expect this year – they are pricing in two 25-bp rate hikes, and see a third as a toss-up, compared with earlier in the week when they thought three hikes were near certain.
“We’ll be leaving very soon,” Trump told reporters at the White House on Tuesday, saying the exit could take place “within two weeks, maybe two weeks, maybe three.”
The remarks underscored the shifting and at times contradictory timelines and statements from Washington about how and when the war, now in its fifth week, might end, and attacks took place on multiple fronts early on Wednesday.
But the comments, alongside a planned address by Trump to the nation scheduled for 9 p.m. EDT on Wednesday (0100 GMT on Thursday) were enough to drive some optimism across stock and bond markets. European shares rose 2% and were set for their biggest daily gain in nearly a year.
Italian debt, which has underperformed in recent weeks on the view the country is more exposed to higher energy prices, outperformed on Wednesday.
Italy’s 10-year yield was down nearly 9 bps at 3.82%.
