Eurozone bond yields declined moderately as heightened geopolitical tensions boosted demand for safe-haven assets, while Italian bonds almost ignored the decision of the Moody's rating agency, which worsened the outlook for Italy's ratings.
On Monday, China announced new military exercises around Taiwan - the day after the planned completion of its largest-ever exercises.
German 10-year bond yields fell by 6.5 basis points to 0.89% after rising by 15 basis points on Friday (the largest one-day increase since March 2020) on the back of strong US labor market data, which strengthened the likelihood of another Fed rate hike in September and affected the ECB's policy outlook. Money markets now estimate the probability of an ECB rate hike by 50 basis points in September at about 90%, compared with about 50% probability a week ago.
The yield on France's 10-year bonds fell by 6.1 basis points to 1.43%, while the yield on Italy's 10-year bonds fell by 0.8 basis points to 3.019%.
On Friday, Moody's lowered its forecast for Italy from "stable" to "negative". The agency said that the risks to creditworthiness have increased due to political events and the economic consequences of Russia's invasion of Ukraine.