Euro area government bond yields edge up on hopes for tariff relief

By Stefano Rebaudo

April 25 (Reuters) - Euro area government bond yields edged up on Friday as cautious hopes for lower U.S. tariffs against China eased fears of a trade war and its negative impact on the global economy.

China is considering exempting some U.S. imports from its 125% trade duties and is asking businesses to identify goods that could be eligible.

Euro zone borrowing costs leapt to a six-day high while traders cut bets on future European Central Bank rate cuts on Wednesday after the Wall Street Journal reported the White House was considering slashing China tariffs.

Germany's 10-year yield, the euro area's benchmark, rose 2 basis points (bps) to 2.46% and it was set to record a weekly drop of 0.5 bps.

U.S. Treasury long-term yields edged down in London trade - with the 10-year falling one bp to 4.30% - after declining on Thursday on tentative hopes of lower-than-feared U.S. duties and the possibility of an interest rate cut by the Federal Reserve in June.

Money markets priced in European Central Bank deposit facility rate at 1.62% in December, up from 1.55% late Tuesday but below the 1.72% level recorded shortly before last week's ECB policy meeting.

Germany's 2-year yield, more sensitive to expectations for ECB policy rates, was up 3 bps to 1.71%. It hit 1.622% on Tuesday, its lowest level since October 2022.

The yield spread between French and German 10-year bond yields - a market gauge of the risk premium investors demand for holding French assets - dropped to 71 bps.

The gap between Italian and German 10-year bond yields fell to 106 bps. (Reporting by Stefano Rebaudo; Editing by Muralikumar Anantharaman)