Government bond yields in much of the Eurozone held near recent 2-1/2 year lows on Friday, as demand for safe-haven debt held strong in the face of growing concern about economic growth, trade tensions and political turmoil in Britain.

British Prime Minister Theresa May said she would quit, deepening the Brexit crisis as a new leader is likely to want a more decisive split with the European Union and raising the chances of an unpredictable snap election.

This comes in a week that has seen more disappointing economic data and growing fears that a US-China trade spat could become a more entrenched strategic dispute between the world’s two largest economies.

“The general assumption in the market up until now was that things would get better,” said Peter Schaffrik, global macro strategist at RBC Capital Markets in London.

“But then the US-China trade talks broke down, Brexit uncertainty is rising and the data is not improving. If you put that altogether it is positive for bonds.” Ten-year bond yields in the United States, Germany, Japan and Britain were all set for a third straight week of falls.

Germany’s Bund yield was marginally higher at minus 0.11 per cent, just 2 basis points away from recent 2-1/2 year lows.

France’s 10-year bond yield was steady at 0.28 per cent, within striking distance of 2-1/2 year lows, while 10-year Austrian and Belgium bond yields fell 3 bps apiece.

“To be really bearish on Bund yields you need to expect the ECB to announce a balance sheet reduction and that’s not going to happen for a few years,” said Eric Oynoyan, G10 senior interest rate strategist at BNP Paribas.

The European Central Bank ended its asset purchase scheme at the end of last year but it reinvests funds from maturing bonds, keeping bond yields down.

US Treasury yields were higher on Friday after falling to their lowest levels since 2017 on Thursday.

The yield curve as measured by the gap between three-month and 10-year Treasury yields remained inverted, however, a sign of bearishness on the economic outlook.

Italian bond yields tumbled to 2-1/2 week lows, with 10-year yields touching 2.55 per cent.

Traders cited conciliatory comments from Italy’s deputy prime minister Matteo Salvini for the move.

He said his League party wanted to change EU fiscal rules to push through tax cuts because it would not want a deficit overshoot that lifted debt costs. Salvini added he was ready to discuss the issue with French and German leaders, in remarks contrasting with recent comments that he was ready to rip up EU budget rules.

“The market is desperate to hang on to any positive news on Italy,” said Rabobank rates strategist Lyn Graham-Taylor.