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German 10-year bond yields rise for 4th straight session

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Euro zone bond yields climb amid reduced ECB rate cut bets

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German investor morale improves, ZEW index shows

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New supply from euro zone, Germany, Italy, Netherlands,

according to LSEG IFR

(Updates throughout after European morning trading)

By Medha Singh

May 13 (Reuters) - A selloff in euro zone bonds

continued on Tuesday as investors pared back bets on interest

rate cuts by the European Central Bank after a

faster-than-expected de-escalation in the U.S.-China trade war

eased worries about a sharp global slowdown.

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

benchmark, rose 3.4 basis points (bps) to 2.671%, while the

two-year yield, more sensitive to ECB policy rates,

was up 1.9 bps at 1.94%. Both were at levels last seen on April

10.

Traders now expect the ECB deposit facility rate to be

at 1.81% by year-end, up from 1.67% late Friday. The deposit

rate is currently at 2.25%.

Euro zone bonds sold off alongside other safe-haven assets

on Monday after weekend talks between U.S. and Chinese

negotiators yielded a 90-day pause in their tit-for-tat trade

dispute and sharply lowered the tariffs the world's top two

economies had imposed on each other.

"There's very clearly upside risk for the broader risk

asset spectrum now as markets will likely extrapolate a higher

likelihood of further deals in the coming weeks," said Max

Kettner, chief multi-asset strategist at HSBC.

Longer-dated bonds were hit harder on Tuesday, with

yields on the 30-year German bond up 4.6 bps at

3.13%.

The European Commission is analysing the trade deal

struck last week between the United States and Britain for

implications for the bloc and global trade, European Economic

Commissioner Valdis Dombrovskis

said

on Monday.

German investor morale rose more than expected in May,

recovering from its sharp decline the previous month, the

ZEW economic research institute

said.

All eyes will be on the U.S. Consumer Price Index for

April due at 1230 GMT, which could show the economic impact of

the trade war on U.S. consumers.

"Even if some of the hard data surprises negatively in

the coming weeks, markets may well shrug that off as being

driven by the 'pre-China-tariff' world and thus no longer

relevant," Kettner said. "Continued resilience in the hard data

or even upside surprises on the other hand would likely be taken

as a positive - a classic win-win situation."

Italy's 10-year yield rose 3.2 bps to 3.71%,

leaving the spread between Italian and German yields - a market

gauge of the risk premium investors demand to hold Italian debt

- at 102 bps.

The European Central Bank will stand by its aggressive

stimulus policy of the last decade in a strategy review,

side-stepping calls for self-criticism after a bout of high

inflation and sizeable losses, several ECB policymakers told

Reuters.

The review, which began in March, will address some big

questions about the way the ECB works. The document is likely to

be finalised in early summer.

In a busy day for bond issuance, there is new supply

coming in from the euro zone, Germany, Italy and the

Netherlands, according to LSEG IFR.