German Bund Yields Plunge On Continued Trade-War RhetoricAuthor: Ali RazaLast Updated: May 20, 2020 The 10-Year bond yield dropped to record lows for Germany on Friday. The reason behind this slide, according to many economists, is direct because of Trump’s sudden threat to impose tariffs on goods from Mexico. Trump’s announcement has created a domino effect of market uncertainty and has increased fears of the possibility of a global recession.What was once an unthinkable event a few weeks ago, the fall in yields of German 10-Year Bonds shows an alarmingly increasing pessimism from investors as they cling to the safest financial instruments available. German government debt is seen as one of the safest financial instruments in the world alongside Swiss government debt.Trump announcement surprises veteransNordea’s chief market strategist, Jan von Gerich, was caught off guard by the announcement by US President Donald Trump on imposing tariffs on Mexico. He said that “the Trump Mexico tariffs surprised me and more so than the escalation of the trade war with China” which points to the immense impact the words of Donald Trump have on the world economy.He further went on to say that news is extremely negative for both the general economic outlook and the markets. The global outlook has been further darkened by Chinese manufacturing data disappointing economists in May. This lead to a rally in safe-haven assets such as government bonds, Yen and gold which has directly affected Germany’s Bund yield.A US rate cut is on the cards now more than ever, due to dovish comments by Richard Clivia. Clivia is the vice-chairman of the US Federal Reserve and his comments included the caveat that it would only come to a rate cut if inflation stays too low or if global risk factors present a problem to the economic outlook of the US.Historic low beats Brexit falloutThe new low that the German Bund had reached beat out the previous record low that happened in 2016 when the results of the Brexit referendum were announced. The yield dropped three basis points following Trump’s announcement, after having fallen more than 20 basis points over the last month. Since there are no real rate cuts in the Euro area, this has been cited as a reason for the historic lows, at least according to Rishi Mishra from Futures First Info Services.Rishi went on to say that it is either the largest mispricing of the century or that Bund yields are going to drop even further – quite possibly dipping below negative 50 bps. The data points to inflation easing in Germany quite sharply during May. This has reinforced the expectations of lower bond yield.Elsewhere on the continent, Dutch yields have fallen below 0% for the first time since 2016, as well as French, Spanish and Portuguese bonds. Greece’s bonds have likewise fallen, going below 3% for the first time ever. However, the situation in Italy is slightly different with yields increasing as the Italian bond is seen as a riskier asset than other countries in the Eurozone. There is a widespread concern in the market regarding Italy.