Euro zone bond yields edge up, snapping 4-day falling streak

By Stefano Rebaudo

May 28 (Reuters) - Euro zone government bond yields edged up on Wednesday, snapping a four-day falling streak as investors await developments on the tariff front, which could affect the economic outlook.

U.S. President Donald Trump on Tuesday said the EU's move to set up talks was positive and that he hoped Europe would "open up" to trade with the U.S. even as he reiterated his threat to impose trade terms if no agreement emerges.

Meanwhile, super-long-dated Japanese government bond yields jumped after a sharp decline in the previous three sessions on expectations that the Ministry of Finance was considering cutting super-long bond issuance to ease market pressure.

Germany's 10-year government bond yield DE10YT=RR, the euro area benchmark, was up 2 basis points (bps) at 2.55% after hitting 2.513% on Monday, its lowest level since May 8.

U.S. stock index futures slipped on Wednesday after a sharp rally in the previous session, when easing tariff tensions boosted sentiment.

Some market participants expect the European Central Bank to ease its monetary policy if U.S. tariffs prompt a sharp economic slowdown in the euro area to prevent inflation from undershooting the ECB's target.

Markets price in a 90% chance of an ECB 25 bps rate cut next week. They also indicated a deposit facility rate at 1.70% EURESTECBM5X6=ICAP in December, from 1.55% in mid-April after the ECB policy meeting.

ECB Chief Economist Philip Lane said that while most factors pointed to euro area inflation continuing to fall, there were others, including the risk of EU-U.S. trade talks failing, that could drive inflation up.

The number of people out of work in Germany rose at a faster pace than expected in May.

"Looking ahead, there are tentative signs of a bottoming out of the labour market," said Carsten Brzeski, global head of macro at ING.

"At the same time, ongoing announcements of potential cost-cutting measures in the automotive and other industries and the continuing increase in the number of bankruptcies are a strong warning against premature celebration."

Benchmark 10-year U.S. Treasury yield US10YT=RR was up 4 bps in London trade after declining 7.5 bps on Tuesday.

Italy's 10-year yield IT10YT=RR rose 2 bps to 3.55%.

The gap between Italian and German yields DE10OT10=RR stood at 97 bps, after reaching 90.90 bps last week, its lowest level since March 2021.

According to Barclays, which has lowered its target range for the Italian-German yield gap to 70-120 bps from 90-140 bps, the recent tightening "reflects the dissolution of the distinctions between core-periphery euro area government bonds."