August 20, 2025

Euro zone government bonds were on pause Tuesday, as traders held their breath for big events ahead. They eagerly await a global central bankers' meeting later this week, and fresh news from important talks in Washington about ending Russia's war in Ukraine. NATO Secretary General Mark Rutte told Fox News, "U.S. President Donald Trump's meeting with Ukrainian President Volodymyr Zelenskiy and other European and NATO partners had been very successful." Adding more fire, Trump announced on social media that he had talked with Russian President Vladimir Putin. He said he is working on a meeting between Putin and Zelenskiy, followed by a summit with all three presidents. But many questions are still up in the air about security promises and whether to aim for a ceasefire or a full peace deal. In a surprising twist, Donald Trump is on a major bond-buying spree! His financial report reveals he invested over $103.7 million in bonds since returning to office. These include corporate debts from big names like Qualcomm, Home Depot, and Meta — companies affected by his policies. Unlike past presidents, Trump did not sell off these assets or create a blind trust, causing worries about possible conflicts of interest. Back to Europe, Germany’s 10-year bond yield, a key euro zone marker, slipped slightly to 2.763%, down from a 4.5-month high of 2.787% on Monday. Remember, lower yields mean higher bond prices! Germany's sensitive two-year yield stayed steady at 1.968%. Analyst Rene Albrecht of DZ Bank explained, "The easy explanation for the inactivity in the market today is that we don't know about progress in the Ukraine talks. The next issue is monetary policy in the U.S. and the discussion about whether the Fed is going to cut in September or not." Federal Reserve Chair Jerome Powell is set to speak at the Kansas City Fed's annual Jackson Hole symposium, with traders betting about an 85% chance of a quarter-point rate cut in mid-September. The Fed’s rate now hangs between 4.25% and 4.50%, unchanged since December. Changes in the U.S. economy’s interest rates often ripple into European bond markets too. Over in the euro zone, expectations are steady for the European Central Bank to pause interest rate hikes in September. Italy’s 10-year bond yield eased 1 basis point to 3.584%, keeping the spread between Italian and German bonds stable at 82 basis points. The gap between Italian and French bonds is shrinking, now about 13.5 basis points. "(Italian Prime Minister Giorgia) Meloni has brought calm back to Italian politics and the path of the budget is in line with EU norms," said DZ Bank’s Albrecht. But France tells a different story. With political storms brewing, French Prime Minister Francois Bayrou unveiled a tough 2026 budget with nearly 44 billion euros ($51.39 billion) in cuts. Opposition Socialist lawmakers plan to resist when parliament returns next month, risking Bayrou’s government. The big picture shows the bond market pausing, watching intense diplomatic talks on Ukraine and eyeing central bank moves. Meanwhile, Trump’s sparkling $104 million bond shopping and European political dramas add spicy flavors to the financial stew.

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Tags: Euro zone bonds, Ukraine war, Donald trump, Federal reserve, Italy budget, France politics,