Eurozone government bond prices volatile due to geopolitical risks and trade war developments, potential portfolio diversification.

From Morningstar: 2025-06-27 12:09:00

Eurozone government bond prices have been volatile in the first half of the year, with the “flight to quality” potentially favoring government bonds over the stock market. Tariffs have driven money into European debt, leading to challenges for investors amid geopolitical risks and trade war developments. The Morningstar Eurozone Treasury Bond Index was up 0.62% in the first six months, with investor movement into German Bunds. Factors driving government bond prices in Q3 will include inflation, fiscal policy decisions, Middle East developments, the trade war, fiscal risks, and ECB interest rate decisions. Investing in government bonds may offer portfolio diversification and shelter from stock market volatility due to factors like tariffs, inflation, and geopolitical shocks. Increased defense spending in Europe may raise government spending and debt levels, leading to potential budget trade-offs for European governments. Despite concerns, managers have a positive outlook on eurozone government bonds and caution on US Treasuries, with a focus on tax reform and debt sustainability. The ECB’s future moves will impact eurozone government bond investors, with potential value in core European government bonds and caution on peripheral bonds against German bunds.



Read more at Morningstar: What’s Next for Eurozone Government Bond Yields?