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Euro zone bond yields edge lower

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Markets digest US CPI, PPI data

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Focus on Trump tariff threats

(Updates for European close)

By Lucy Raitano

LONDON, July 16 (Reuters) - Euro zone government bond

yields were slightly lower on Wednesday as markets assessed U.S.

inflation figures and took stock of the latest tariff

developments.

U.S. June CPI data on Tuesday showed an increase of 0.3%,

suggesting tariffs are reading through to prices, and spurring

investors to trim their bets on Federal Reserve rate cuts.

But U.S. producer prices were unchanged in June, data

showed on Wednesday, as an increase in the cost of goods because

of tariffs on imports was offset by weakness in services.

Economists polled by Reuters expected a 0.2% rise.

In Europe, the reaction was relatively muted, with German

10-year yields, the euro area's benchmark, down less

than 3 basis points to 2.684%, hovering just below a nearly

four-month high of 2.737% scaled on Monday. The 10-year U.S.

Treasury yield was down 3.5 bps.

"A pause after a run up in yields makes sense," said Kenneth

Broux, head of corporate research FX and rates at Societe

Generale.

"I'm keeping a close eye on stocks after profit warnings ...

that puts a brake on yields."

Germany's two-year yield - more sensitive to expectations

for European Central Bank policy rates - was down 2.5 bps to

1.841%.

The German 30-year yield was down 2.5 bps at

3.208%, having risen to its highest level since October 2023 on

Monday at 3.26%.

UK data meanwhile showed Britain's annual rate of consumer

price inflation unexpectedly rose to its highest in over a year,

at 3.6% in June.

The print meant UK 10-year gilt yields were

little changed at 4.631%, while most of the other major

government bond yields were slightly down.

Markets were focused on U.S. President Donald Trump's

ongoing trade war, with his latest move being a 19% tariff on

goods from Indonesia under a new agreement with the Southeast

Asian country.

That came as the European Union is readying retaliatory

measures should talks with Washington fail. EU trade

commissioner Maros Sefcovic was heading to the U.S. on Wednesday

for discussions.

Planned U.S. tariffs of 30% on imports from the EU could

cost the German economy about a quarter of a percentage point in

growth this year and next compared with current forecasts, the

IMK institute said on Wednesday.

Elsewhere, the German cabinet approved on Wednesday a

medium-term fiscal plan that will be submitted to the European

Commission, a spokesperson from the finance ministry said.