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Tech selloff pushes bond yields lower across the board

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ECB expected to cut rates this week, Fed to hold

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Tariff uncertainty could set tone in near term

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German business morale unexpectedly improves

(Updates with European midday trade)

By Greta Rosen Fondahn

Jan 27 (Reuters) - Euro zone bond yields fell on Monday,

as investors rushed to the safety of government bonds amid a

sell-off in tech stocks, as a surge in popularity of a Chinese

discount artificial intelligence model shook markets.

Germany's 10-year bond yield, the benchmark for

the euro zone, fell 7 basis points (bps) to 2.475%. On Friday

the yield touched its highest since Jan. 16 at 2.569%.

Yields move inversely to prices.

"Europe is taking its cue from the US," said Rabobank

analysts in a note.

U.S. 10-year Treasury yields fell 11 bps on

Monday to 4.5081%.

Startup DeepSeek has rolled out a free assistant it says

uses lower-cost chips and less data, seemingly challenging a

widespread bet in financial markets that AI will drive demand

along a supply chain from chipmakers to data centres.

Speculation around U.S. tariff plans also continued while

investors readied for a string of central bank meetings this

week.

Markets broadly expect the ECB to cut rates by 25 bps on

Thursday, while investors will listen for clues about potential

further reductions.

Markets are pricing in about 93 bps in ECB cuts for 2025.

On Wednesday, the U.S. Federal Reserve is expected to hold

rates steady.

With investors banking on few surprises from the central

banks, developments around U.S. President Donald Trump's tariff

plans are likely to set the tone for the week.

"I think there's going to be more focus on what tariff

headlines will be," said Danske Bank chief analyst Piet Haines

Christiansen.

The U.S. and Colombia pulled back from the brink of a trade

war on Sunday after the South American nation eventually agreed

to accept military aircraft carrying deported migrants.

Markets increased bets on future U.S. interest rate cuts and

priced in 53 bps of reductions in 2025.

Italy's 10-year yield was 4 bps​ lower at 3.62%,

and the gap between Italian and German yields

widened 2.5 bps to 113.6 bps.

In the euro area, a survey on Monday showed German business

morale unexpectedly improved in January.

But ING analysts noted Europe's largest economy remained

stuck in a downturn.

"The slight increase in Germany's most prominent leading

indicator does not yet signal an imminent economic rebound,"

said ING's Carsten Brzeski.

Germany's two-year bond yield, which is more

sensitive to ECB rate expectations, was down 6 bps at 2.225%.