Bund yields rise to multi-week highs on trade hopes

By Stefano Rebaudo

May 9 (Reuters) - German Bund prices fell on Friday, pushing yields higher, as investors moved away from safe-haven assets after a U.S.-UK trade deal raised hopes for similar tariff agreements elsewhere, boosting risk appetite.

Markets expect trade tensions to hurt economic growth in the euro area, potentially forcing the European Central Bank to cut interest rates further.

Stocks surged, fuelled by guarded optimism over tariff talks, while futures on the S&P 500 index were up 0.1%. EScv1

Germany's 10-year yield DE10YT=RR, the euro area benchmark, rose 6.5 basis points to 2.588%, its highest since April 11. It's currently on track for its biggest weekly rise, up 6.5 bps, since early March when Germany announced a political agreement to massively increase fiscal spending.

U.S. Treasury yields edged higher in London trade - with the 10-year US10YT=RR up 0.5 bps at 4.38% - after touching multi-week highs on Thursday.

U.S. President Donald Trump and British Prime Minister Keir Starmer announced on Thursday a limited bilateral agreement.

Trump said he expected substantive negotiations with China this weekend and predicted that U.S. tariffs on Beijing of 145% would come down.

"Markets have somewhat eased economic fears following President Trump’s signals of a trade war de-escalation. However, this relief may be premature," said Johan Javeus, senior economist at SEB group.

"We expect U.S. data to increasingly reflect the impact of higher import prices and for trade uncertainty to weigh on business investment and hiring decisions."

Money markets priced in an ECB deposit facility rate of 1.65% for December. They had indicated a depo rate below 1.55% in mid-April as the ECB suggested it was ready to cut rates in response to the potential adverse economic impact of U.S. tariffs. The depo rate is currently 2.25%.

The euro zone's fight to bring inflation back to the 2% target is on track but the growth environment is deteriorating, with a global trade war creating a significant risk in the outlook, Finnish central bank chief Olli Rehn said on Friday.

Barclays recently argued that 1.5% terminal rate pricing should be the floor for now, with the ceiling around 1.75%.

"The yo-yo between these levels or beyond these levels would be a function of how the news flow around tariffs evolve and if the hard data eventually matches the weakness in the soft data," Barclays said in a research note.

German 2-year yields DE2YT=RR, more sensitive to ECB policy rates, were up 3 bps at 1.80%.

Italy's 10-year yield rose 7.5 bps to 3.66% IT10YT=RR, leaving the spread over Germany's Bund yield - a market gauge of the risk premium investors demand to hold Italian debt - at 105 bps. DE10IT10=RR