Euro zone government bond yields edge up before ECB meeting

By Stefano Rebaudo

April 17 (Reuters) - Euro zone government bond yields edged up on Thursday as investors expect the European Central Bank to cut rates by 25 basis points later in the session while focusing on clues about the impact of U.S. tariffs on the rate outlook.

Markets will want to see if the ECB maintains a reference to rates being restrictive, as such a phrase would signal that more policy easing remains the baseline. They will also be looking for any updates on the impact of trade barriers.

Germany's 10-year yield DE10YT=RR, the euro area's benchmark, rose one basis point (bp) to 2.51% after falling 4 bps the day before.

U.S. Treasury yields fell on Wednesday, with the benchmark 10-year yield US10YT=RR down 4.5 bps, after comments from Federal Reserve Chair Jerome Powell stoked concerns about economic growth and inflation pressures.

Italian bond yields IT10YT=RR rose 3 bps to 3.73%, with the gap between Italian and German yields DE10IT10=RR -- a market gauge of the risk premium investors demand to hold Italian debt -- at 116 bps. Last week, credit rating agency S&P upgraded Italy's long-term ratings to "BBB+" from "BBB".

Market pricing for the ECB rate path was roughly unchanged this week. Investors are pricing the ECB deposit rate at 1.67% by December EURESTECBM6X7=ICAP, implying three rate cuts from the current 2.5% and about a 30% chance of a fourth easing move.

Germany's 2-year yield DE2YT=RR, more sensitive to expectations for ECB policy rates, rose one bp to 1.75%.