Euro zone bond yields dip as investors assess inflation figures, trade talks

By Lucy Raitano

LONDON, July 16 (Reuters) - Euro zone government bond yields were slightly lower on Wednesday as markets assessed U.S. inflation figures and took stock of the latest tariff developments.

U.S. June CPI data on Tuesday showed an increase of 0.3%, suggesting tariffs are reading through to prices, and spurring investors to trim their bets on Federal Reserve rate cuts.

But U.S. producer prices were unchanged in June, data showed on Wednesday, as an increase in the cost of goods because of tariffs on imports was offset by weakness in services. Economists polled by Reuters expected a 0.2% rise.

In Europe, the reaction was relatively muted, with German 10-year yields DE10YT=RR, the euro area's benchmark, down less than 3 basis points to 2.684%, hovering just below a nearly four-month high of 2.737% scaled on Monday. The 10-year U.S. Treasury yield US10YT=RR was down 3.5 bps.

"A pause after a run up in yields makes sense," said Kenneth Broux, head of corporate research FX and rates at Societe Generale.

"I'm keeping a close eye on stocks after profit warnings ... that puts a brake on yields."

Germany's two-year yield – more sensitive to expectations for European Central Bank policy rates – was down 2.5 bps to 1.841% DE2YT=RR.

The German 30-year yield DE30YT=RR was down 2.5 bps at 3.208%, having risen to its highest level since October 2023 on Monday at 3.26%.

UK data meanwhile showed Britain's annual rate of consumer price inflation unexpectedly rose to its highest in over a year, at 3.6% in June.

The print meant UK 10-year gilt yields GB10YT=RR were little changed at 4.631%, while most of the other major government bond yields were slightly down.

Markets were focused on U.S. President Donald Trump's ongoing trade war, with his latest move being a 19% tariff on goods from Indonesia under a new agreement with the Southeast Asian country.

That came as the European Union is readying retaliatory measures should talks with Washington fail. EU trade commissioner Maros Sefcovic was heading to the U.S. on Wednesday for discussions.

Planned U.S. tariffs of 30% on imports from the EU could cost the German economy about a quarter of a percentage point in growth this year and next compared with current forecasts, the IMK institute said on Wednesday.

Elsewhere, the German cabinet approved on Wednesday a medium-term fiscal plan that will be submitted to the European Commission, a spokesperson from the finance ministry said.