Euro zone bond yields edge higher after Fed inflation warning, await BoE

May 8 (Reuters) - Euro zone government bond yields edged higher on Thursday after the U.S. Federal Reserve warned about the risks of higher inflation and unemployment, with investors now looking towards the Bank of England's monetary policy meeting later in the day.

The Fed held interest rates steady on Wednesday but said those risks clouded the U.S. economic outlook as its policymakers grappled with the impact of President Donald Trump's tariffs.

Germany's 10-year yield DE10YT=RR, the euro area's benchmark, rose one basis point (bp) to 2.48%. It hit 2.556% on Tuesday, its highest level since April 14.

U.S. Treasury yields edged higher - with the 10-year US10YT=RR rising 2 bps to 4.29% - after dropping the day before while the policy-rate sensitive 2-year yield US2YT=RR was roughly unchanged.

Money markets priced in a European Central Bank deposit facility rate at 1.6% after falling to below 1.55% in mid-April as the ECB suggested it was ready to cut rates in response to the potential adverse impact of U.S. tariffs.

German 2-year yields DE2YT=RR, more sensitive to ECB policy rates, rose one bp to 1.74%.

Italy's 10-year yield was up one bp at 3.57% IT10YT=RR, leaving the spread between it and Germany's Bund yield – a market gauge of the risk premium investors demand to hold Italian debt -- at 104 basis points. DE10IT10=RR