Euro zone bond yields rise as U.S. tariff deadline looms

By Lucy Raitano

LONDON, July 7 (Reuters) - Euro zone bond yields rose on Monday as markets focused on developments around U.S. tariffs, with officials flagging a delay to a July 9 deadline, although specifics on the changes remained murky.

U.S. Treasury Secretary Scott Bessent said the United States will make several announcements on trade in the next 48 hours, as the 90-day tariff pause comes to an end.

His comments echoed those of President Donald Trump, who said the U.S. was close to finalising trade deals and would notify other countries of higher tariff rates by July 9.

"Today is all about what Trump does in terms of his tariffs," said Mohit Kumar, chief financial economist for Europe at Jefferies.

"Where euro zone markets are concerned, the key question is: is Europe going to be part of that list or not?," said Kumar, whose base case is that the region will not feature, though he thinks Japan might be included.

Germany's benchmark 10-year Bund yield DE10YT=RR rose 3.5 basis points (bps) to 2.601%, largely in line with moves in 10-year U.S. Treasuries US10YT=RR.

Whatever the outcome, markets have braced for heightened volatility this week ahead of the deadline, with more concrete details on Trump's plans for import tariffs with the United States' major trading partners set to become clear.

Italy's 10-year yield IT10YT=RR rose 5 bps to 3.522%, with the premium over German Bunds at about 92 bps DE10IT10=RR, according to LSEG data.

Outside the euro zone, Britain's 10-year gilt yield GB10YT=RR was up 2 bps at 4.57%, remaining elevated following a sharp sell-off in UK government bonds last Wednesday, which was spurred by a U-turn on planned government cuts to welfare spending.

Elsewhere, German industrial production rose more than expected in May thanks to the automotive industry and energy production, the federal statistics office said on Monday.

Investor sentiment in the euro zone improved more than expected in July to hit its highest level in more than three years, a survey showed on Monday, as the bloc's economic recovery broadened.

Markets are currently placing a more than 90% chance of no change at the European Central Bank's next policy announcement on July 23, after 200 bps worth of rate cuts since the middle of last year.

"The ECB is in a fantastic place, in the sense that rates are neutral, inflation is going to 2%, growth is fine - it's not great - but we're far from recession level," said Kumar.

"They can really afford to just wait and watch," he said.

Germany's two-year yield DE2YT=RR, typically more sensitive to shifts in interest rate expectations, was up by 2.5 bps at 1.843% but remained close to a three-week low of 1.799% touched on Friday.