FX.co ★ Italy 10-Year Yields Hold Low Amid Trade Tensions

Yields on Italy's 10-year government bonds (BTPs) remained steady around 3.42%, nearing their lowest since late November. This is attributed to a rise in demand for safe-haven assets amidst escalating trade tensions between the United States and Europe. Over the weekend, President Trump issued a warning of potential 10% tariffs on products from eight European nations starting in February, which could escalate to 25% by June unless Greenland is ceded to US control. In retaliation, the European Union signaled that it may impose tariffs on up to €93 billion worth of US goods if these proposed tariffs take effect on February 1. Concurrently, inflation in the Eurozone dropped to 1.9%, falling below the European Central Bank's 2% target. Market participants adjusted their expectations for ECB interest rates, now predicting only a 20% likelihood of a 25-basis-point increase by April 2027. In the United States, Federal Reserve Vice Chair Michelle Bowman highlighted vulnerabilities in the labor market and suggested the central bank should "remain open to further rate cuts" if economic conditions deteriorate.