Bund yields snap five-week falling streak on hopes for tariff relief

By Stefano Rebaudo and Yadarisa Shabong

April 25 (Reuters) - Bund yields ended the week higher, breaking a five-week falling streak, as signals that the United States may reduce tariffs on Chinese imports eased concerns of a trade war and its adverse impact on the global economy.

China exempted some U.S. imports from its steep tariffs, though Beijing quickly knocked down U.S. President Donald Trump's assertion that negotiations were underway.

Trump's administration has in recent days signalled it is looking to de-escalate the dispute between the world's two largest economies, and Trump himself told Time magazine that talks were taking place and that Chinese President Xi Jinping had called him. China denied that discussions were happening.

Germany's 10-year yield DE10YT=RR, the euro area's benchmark, rose 3.2 basis points to 2.475%, finishing the week 1 bp higher.

"For China, our view remains that this is a battle that Trump cannot win and will eventually need to back down," said Mohit Kumar, chief strategist Europe at Jefferies.

"But the delay in negotiating a deal will have a negative impact on both U.S. and China growth," he added.

U.S. Treasury long-term yields edged down - with the 10-year US10YT=RR down 2 bps - after declining on Thursday.

Tentative hopes of lower than feared U.S. tariffs and the possibility of an interest rate cut by the Federal Reserve in June appear to be attracting investors back to U.S. bonds after a period of underperformance against European paper.

Money markets are pricing in a European Central Bank deposit facility rate at 1.62% in December EURESTECBM5X6=ICAP, up from 1.55% late Tuesday but below the 1.72% level recorded shortly before last week's ECB policy meeting. They are also fully pricing in a 25 bps cut in June. EURESTECBM1X2=ICAP

ECB policymaker Olli Rehn on Thursday played up the chance of an interest rate cut in June, while colleague Robert Holzmann said euro zone rates should be held until more clarity emerges on the path of U.S. tariffs and European Union countermeasures.

Germany's 2-year yield DE2YT=RR, more sensitive to expectations for ECB policy rates, was up 5 bps to 1.74% on Friday. It has risen 6 bps this week after six straight weekly falls.

The yield spread between French and German 10-year bond yields DE10FR10=RR - a market gauge of the risk premium investors demand for holding French assets - was 72 bps.

The gap between Italian and German 10-year bond yields DE10IT10=RR stood at 111 bps.