Euro zone government bond yields hit fresh multi-week highs

By Stefano Rebaudo

May 14 (Reuters) - Euro zone government bond yields edged up to reach fresh multi-week highs on Wednesday as easing trade tensions allayed concerns about economic growth.

Analysts noted that the economic data calendar was thin on Wednesday, but investors awaited Thursday's U.S. economic reports, which could provide further insight into the impact of the initial phase of tariffs.

Euro area borrowing costs jumped on Monday following a preliminary U.S.-China trade deal and comments from European Central Bank board member Isabel Schnabel suggesting the ECB should stop cutting rates.

Germany's 10-year yield DE10YT=RR, the euro area's benchmark, rose 1.5 basis points (bps) to 2.691%, its highest level since April 10.

Money markets priced in the European Central Bank deposit facility rate to be at 1.80% by year-end EURESTECBM5X6=ICAP, up from 1.67% late Friday and from below 1.55% after the ECB suggested in mid-April it will cut rates in response to a possible tariff-induced economic slowdown.

They also indicated an almost 95% chance of a rate cut in June and about a 10% chance of a second easing move in July.

German 2-year yields DE2YT=RR, more sensitive to ECB policy rates, were up one basis point at 1.95%.

U.S. Treasury yields dropped in early London trade – with the 10-year US10YT=RR down 3 bps at 4.47% - after rising the day before as investors worried about inflation picking up in the coming months.

Italy's 10-year yield rose one basis point to 3.71% IT10YT=RR, after reaching 3.756%, its highest since April 14.

The spread between Italian and German yields – a market gauge of the risk premium investors demand to hold Italian debt – was at 99.5 bps DE10IT10=RR, after reaching 93.80 the day before, its lowest since early April 2021.