Euro zone yields set for weekly fall on concerns about the economy

By Stefano Rebaudo

Feb 28 (Reuters) - Euro area borrowing costs were on track for a weekly fall as investors on Friday increased bets on future European Central Bank rate cuts in response to worries about the bloc’s economic growth.

U.S. President Donald Trump has floated a 25% "reciprocal" tariff on European cars and other goods, sparking renewed worries of a possible trade war.

German election winner Friedrich Merz has ruled out a quick relaxation of state borrowing limits while U.S. Treasury yields dropped on weak data.

Analysts have said an increase in fiscal spending in Germany could boost the economy across the euro area.

Germany's 10-year bond yield DE10YT=RR, the benchmark for the wider euro zone, was down 2 basis points (bps) at 2.396%, a fresh 2-1/2-week low, and down 5 bps on the week.

The 2-year yield DE2YT=RR, more sensitive to European Central Bank policy rates, fell one bp to 2.03%.

Money markets were pricing in a European Central Bank depo rate at 1.87% in December EURESTECBM7X8=ICAP from the current 2.75%, implying three 25 bps rate cuts and an almost 50% chance of a fourth move. They were pricing the depo rate at 1.97% late last week.

Italy's 10-year yield IT10YT=RR was up 0.5 bps at 3.49%. Italian government bonds were yielding 108.5 bps more than German ones DE10IT10=RR.