Euro zone bond yields muted, tariffs in focus

(Updates in late European trading)

March 26 (Reuters) – Euro zone government bond yields were little changed on Wednesday as markets were kept in check by caution about looming U.S. tariffs and their potential impact on economic growth.

The German 10-year bond yield, the benchmark for the euro zone bloc, was last up 1 basis point at 2.805%. It hit a one-week high of 2.831% on Tuesday as hopes for U.S. tariff concessions drove investors to riskier assets.

It has gained more than 40 basis points so far this month, chiefly due to Germany’s plan to massively boost spending to revive growth in Europe’s largest economy.

“Considering that we should see a bit more stronger growth going forward in Europe, I think the risk-reward is probably skewed towards higher yields into the second quarter,” said Kenneth Broux, head of corporate research FX and rates at Societe Generale.

“But the tariff story is in the background and … we can’t ignore that at all,” Broux added.

The European Union’s trade commissioner Maros Sefcovic met with U.S. President Donald Trump’s top trade officials on Tuesday to try to avoid steep U.S. tariffs on EU goods next week.

Some countries are preparing trade concessions ahead of Trump’s April 2 announcement of reciprocal tariffs. Trump said this week some countries would get breaks, without giving further details.

“There’s so many other factors that need to come … on the 2nd of April, we have the tariff announcement by the U.S., is there going to be further escalation from the European Union, what does that mean for inflation growth,” Broux said.

The ECB has not committed to any decision on rates in its next meeting in April. Data, including that for Spain and France’s inflation on Friday, will be important.

The German 2-year bond yield, more sensitive to ECB policy rates, was little changed at 2.13%.

Markets are pricing in an ECB deposit rate at roughly 1.98% at the end of 2025.

Italy’s 10-year yield was 1 bp higher at 3.904%, and the gap between Italian and German 10-year bond yields was 109 bps.

Britain’s 10-year government bond yield was down 2 bps at 4.733% after finance minister Rachel Reeves announced spending cuts and a downgrade in growth forecasts in a fiscal statement.

That was little changed from before the statement, after yields dipped in the morning session following weaker-than-expected UK inflation data.

(Reporting by Yadarisa Shabong in Bengaluru; Editing by Andrew Heavens, Kim Coghill and Alison Williams)