Euro zone bond yields fall amid tech selloff

Tech selloff pushes bond yields lower across the board

ECB expected to cut rates this week, Fed to hold

Tariff uncertainty could set tone in near term

German business morale unexpectedly improves

(Updates with European midday trade)

Jan 27 (Reuters) – Euro zone bond yields fell on Monday, as investors rushed to the safety of government bonds amid a sell-off in tech stocks, as a surge in popularity of a Chinese discount artificial intelligence model shook markets.

Germany’s 10-year bond yield, the benchmark for the euro zone, fell 7 basis points (bps) to 2.475%. On Friday the yield touched its highest since Jan. 16 at 2.569%.

Yields move inversely to prices.

“Europe is taking its cue from the US,” said Rabobank analysts in a note.

U.S. 10-year Treasury yields fell 11 bps on Monday to 4.5081%.

Startup DeepSeek has rolled out a free assistant it says uses lower-cost chips and less data, seemingly challenging a widespread bet in financial markets that AI will drive demand along a supply chain from chipmakers to data centres.

Speculation around U.S. tariff plans also continued while investors readied for a string of central bank meetings this week.

Markets broadly expect the ECB to cut rates by 25 bps on Thursday, while investors will listen for clues about potential further reductions.

Markets are pricing in about 93 bps in ECB cuts for 2025.

On Wednesday, the U.S. Federal Reserve is expected to hold rates steady.

With investors banking on few surprises from the central banks, developments around U.S. President Donald Trump’s tariff plans are likely to set the tone for the week.

“I think there’s going to be more focus on what tariff headlines will be,” said Danske Bank chief analyst Piet Haines Christiansen.

The U.S. and Colombia pulled back from the brink of a trade war on Sunday after the South American nation eventually agreed to accept military aircraft carrying deported migrants.

Markets increased bets on future U.S. interest rate cuts and priced in 53 bps of reductions in 2025.

Italy’s 10-year yield was 4 bps​ lower at 3.62%, and the gap between Italian and German yields widened 2.5 bps to 113.6 bps.

In the euro area, a survey on Monday showed German business morale unexpectedly improved in January.

But ING analysts noted Europe’s largest economy remained stuck in a downturn.

“The slight increase in Germany’s most prominent leading indicator does not yet signal an imminent economic rebound,” said ING’s Carsten Brzeski.

Germany’s two-year bond yield, which is more sensitive to ECB rate expectations, was down 6 bps at 2.225%. (Reporting by Greta Rosen Fondahn. Editing by Mark Potter and Christina Fincher)