Over the course of the previous week, several key developments influenced the capital markets. In the US, the ongoing uncertainty surrounding tariffs and the evolving Russia-Ukraine peace efforts have left investors in a cautious stance. The unpredictability of the Trump administration’s moves – especially regarding trade policy – continues to shape market sentiment. Meanwhile, the Federal Reserve held its latest policy meeting, delivering no major surprises. Lastly, in Europe, the voting on Germany’s debt brake reform emerged as a historic shift in fiscal policy. Let’s see how all of this is reflected on the market.
Across the Atlantic, attention remains fixed on Trump’s diplomatic initiatives and tariff-related decisions, alongside the latest Federal Reserve meeting. The partial ceasefire between Russia and Ukraine marked a step toward de-escalation, with both sides agreeing to halt airstrikes on energy infrastructure. However, peace remains elusive, as sporadic clashes persist, and broader geopolitical tensions remain unresolved. The situation is further complicated by U.S. economic interests in Ukraine, particularly in the potential acquisition of the Zaporizhia power plant and access to the country’s valuable mineral deposits.
Looking ahead, early April marks the expiration of the tariff exemption for Canada and Mexico, creating additional uncertainty. Should tariffs be reinstated, the total value of affected imports would rise from $1 trillion to $1.4 trillion, raising concerns over inflation and economic growth. The Federal Reserve, fully aware of the negative market sentiment stemming from trade policies, opted to keep interest rates unchanged at 4.25%–4.5%. The central bank’s economic outlook remains cautious, projecting higher inflation and weaker growth in 2025 while still expecting two rate cuts by the end of the year. Fed Chair Jerome Powell acknowledged that tariffs play a significant role in shaping inflation expectations and emphasized ongoing efforts to differentiate between tariff-induced and nontariff inflationary pressures.
Following the Fed meeting, President Trump underscored economic concerns, warned of a “period of transition” and urged the central bank to accelerate rate cuts. Despite the mixed economic outlook, U.S. Treasury yields declined across most maturities, generating positive returns, as cooler-than-expected inflation data alleviated some pressure on fixed-income markets.
In Europe, while investors closely monitored U.S. tariff developments and the Russia-Ukraine ceasefire, Germany’s fiscal policy shift took center stage. Markets initially reacted to concerns over the proposed relaxation of Germany’s strict borrowing rules, but sentiment improved following the successful passage of the debt brake reform. On Friday, the Bundesrat (Germany’s upper house of parliament) formally approved a €500 billion infrastructure and defense spending package, marking a decisive break from decades of fiscal conservatism. The move is expected to support economic growth and strengthen Europe’s largest economy amid a sluggish macroeconomic backdrop.
The announcement helped German Bunds recover from early-month losses, as investors reassessed the implications of increased government spending. While the shift toward looser fiscal policy could place upward pressure on yields over time, the immediate reaction was more measured, with Bunds stabilizing as the market digested the structural changes.
Looking ahead, the interplay between U.S. trade policy, Federal Reserve actions, and Europe’s evolving fiscal stance will remain key drivers for global bond markets. With geopolitical risks still looming and economic uncertainty persisting, investors are likely to maintain a cautious approach in the near term.
Bund monthly performance
Source: Bloomberg, InterCapital
