May 8 (Reuters) - Euro zone government bond yields edged

higher on Thursday after the U.S. Federal Reserve warned about

the risks of higher inflation and unemployment, with investors

now looking towards the Bank of England's monetary policy

meeting later in the day.

The Fed held interest rates steady on Wednesday but said

those risks clouded the U.S. economic outlook as its

policymakers grappled with the impact of President Donald

Trump's tariffs.

Germany's 10-year yield, the euro area's

benchmark, rose one basis point (bp) to 2.48%. It hit 2.556% on

Tuesday, its highest level since April 14.

U.S. Treasury yields edged higher - with the 10-year

rising 2 bps to 4.29% - after dropping the day

before while the policy-rate sensitive 2-year yield

was roughly unchanged.

Money markets priced in a European Central Bank deposit

facility rate at 1.6% after falling to below 1.55% in mid-April

as the ECB suggested it was ready to cut rates in response to

the potential adverse impact of U.S. tariffs.

German 2-year yields, more sensitive to ECB

policy rates, rose one bp to 1.74%.

Italy's 10-year yield was up one bp at 3.57%,

leaving the spread between it and Germany's Bund yield - a

market gauge of the risk premium investors demand to hold

Italian debt -- at 104 basis points.