(Reuters) – Euro zone government bond yields fell on Monday as U.S. yields fell after President-elect Donald Trump announced he had chosen fund manager Scott Bessent as U.S. Treasury secretary.

The choice of Scott Bessent, who is expected to keep control of the US debt, sparked a rally in US Treasuries as investors were previously worried about a rebound in inflation and the rise in the deficit federal budget due to Donald Trump’s economic program.

The ten-year Treasuries rate, which moves in the opposite direction to bond prices, dropped more than six basis points on Monday, to 4.3492%.

Weak Eurozone purchasing manager surveys (PMIs) drove German two-year yields and the euro to their lowest levels in almost two years on Friday, on expectations of deeper cuts interest rates of the European Central Bank (ECB).

Philip Lane, ECB chief economist, said on Monday that ECB policy should not remain restrictive for too long, otherwise price growth could fall below the 2% target.

Money markets include an ECB deposit facility rate of around 1.85% in July, compared to 1.80% on Friday. They have completely ruled out a 25 basis point (bp) rate cut next month and estimate the probability of a 50bp move to be around 40%.

The yield on 2-year German government bonds, the most sensitive to expectations regarding ECB key rates, fell 2.5 basis points to 1.99%, after reaching 1.979%, its lowest level since December 2022.

Germany’s 10-year yield, the benchmark for the euro zone, fell 3.5 basis points to reach a new one-month low of 2.215%.

The gap between French and German yields widened slightly to reach 80.5 basis points.

The yield on 10-year Italian government bonds, the benchmark for the so-called peripheral countries of the euro zone, fell by three basis points to 3.48%.

(Written by Stefano Rebaudo, Bertrand De Meyer, edited by Blandine Hénault)

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