Euro area yields inch up after PMI data, tariffs and Germany in focus

(Updates in late European trading)

March 24 (Reuters) – Euro area yields rose slightly on Monday after Purchasing Managers’ Index data met expectations, as investors balanced risks from U.S. tariffs against expectations of stronger growth stemming from Germany’s investment plans.

as investors moved out of fixed income and into stocks on the back of optimism that U.S. President Donald Trump’s April 2 tariffs would be narrower than expected. That also pushed up on euro zone yields.

Investors had forecast German PMIs would rise sharply after the government laid out plans for a surge in infrastructure and defence spending. They had also expected the weak survey for France as political uncertainty continued to weigh.

Euro zone business activity grew at its fastest pace in seven months in March, supported by an easing in the long-running manufacturing downturn.

Trump said there will be some flexibility in the tariff policies that the U.S. administration should impose early next month.

Markets were also watching negotiations over a possible ceasefire in Ukraine as Russian and U.S. delegations began talks in Riyadh, Saudi Arabia, on Monday morning.

“The March picture that the PMI paints is one of modest improving growth with easing inflation,” ING economist Bert Colijn said.

“However, next week could already upend that picture as U.S. tariff announcements and possible European retaliation may change the economic landscape significantly.”

Germany’s 10-year government bond yields rose 2 basis points to 2.786%. They had reached 2.746% on Friday, their lowest level since March 5.

Markets priced in a European Central Bank depo rate at 1.98% at the end of 2025 and 2.02% in July next year.

They briefly bet on an 80% chance of a rate hike in summer 2026. The ECB euro short-term rate forwards indicated a deposit rate of 2.2% in July 2026, and 2% in December 2025.

Germany’s 2-year yields, which are sensitive to European Central Bank policy rates, were flat at 2.134%.

ECB board member Piero Cipollone said on Monday that key elements such as energy price declines and the euro appreciation strengthened the case for further interest rate cuts.

Italy’s 10-year yields rose 1 basis point to 3.831%. The gap between Italian and German government bond yields was 104 bps.

(Reporting by Stefano Rebaudo, additional reporting by Harry Robertson; Editing by Toby Chopra, Ed Osmond and Andrew Heavens)