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Euro zone bond yields lower

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US yields drop after soft data

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Easing trade tensions remain in focus

(Updates to close)

By Lucy Raitano

LONDON, May 15 (Reuters) - Euro zone bond yields fell on

Thursday, taking cues from U.S. Treasuries as soft inflation,

retail sales and factory data kept Federal Reserve rate cuts on

the table for later this year.

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

benchmark, was down 5.5 basis points (bps) to 2.638%, though it

remained close to an almost one-month high of 2.7% reached

earlier in the day.

Germany's 2-year yield, more sensitive to

changes in expectations for monetary policy, was down 6 bps at

1.884%.

U.S.

producer prices unexpectedly fell

in April, pulled down by ebbing demand for air travel and

hotel accommodation. Meanwhile,

retail sales growth slowed

last month and

industrial output remained unchanged

.

"To me it's more about a U.S. story rather than a

European story, of course bunds trade in tandem with treasuries

... the biggest driver for bund yields is actually not European

domestics right now, it's much more external factors," Mohit

Kumar, chief economist and strategist for Europe at Jefferies,

said.

U.S. Treasury yields fell across the curve, with the

10-year benchmark down 4 bps at 4.4966%.

The data was "friendly for inflation and Fed cuts", said

Kenneth Broux, senior strategist at Societe Generale in London.

Markets are pricing in about 55 bps of easing from the

Federal Reserve by the end of the year, implying two

quarter-point rate cuts and about a 20% chance of a third.

The first rate cut for the Fed is fully priced at the

September meeting.

Investors are also pricing in about 50 basis points of

cuts for the European Central Bank this year, with a 25 basis

point move priced for the June meeting.

Today's data reflects the uncertainty caused by U.S.

President Donald Trump's import tariffs announced on April 2

which sent markets into a tailspin and had investors shunning

U.S. assets, including Treasuries.

On Monday, the U.S. and China announced a truce,

lowering tariffs for 90 days, which sent equities higher across

the globe, although analysts still expect market volatility to

continue this year.

"The policymaking itself is generating considerable

uncertainty and to our minds this uncertainty has not been

dispelled by the de-escalation" said Richard McGuire, head of

rates strategy at Rabobank.

Italy's 10-year yield fell 5.5 bps to

3.659%, keeping the spread between Italian and German 10-year

yields at about 99 bps, close to its tightest level since April

2021.