Rising Yields and Fiscal Concerns Shake Euro Zone Bond Markets

Investor fears over fiscal trajectories and rising Japanese yields have widened the gap between 10-year and 30-year German bond yields to a seven-year peak. Japanese government bond yields rose following Prime Minister Sanae Takaichi's coalition win, which sets the stage for tax cuts and increased military spending.

Analysts suggest focusing on the domestic bond market may be prudent for Japanese investors, potentially creating a crowding-out effect for other sovereign yields. This environment supports strategies that favor steepeners, given the expansionary fiscal policies.

The high yields reflect broader concerns about increased government spending and borrowing globally, amid mixed results from European economic indicators and upcoming U.S. data releases. Analysts maintain a cautious outlook as geopolitical and economic uncertainties continue to loom.