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Euro zone bond yields edge lower

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Markets await US date

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Relief on easing trade tensions fades

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Euro zone

(Updates latest price moves, adds quotes, euro zone flash news,

further context on US-China trade tensions)

By Lucy Raitano

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

on Thursday as traders await key U.S. data due later in the

session for a steer on the world's biggest economy, while relief

on easing trade tensions faded, pushing some flows into fixed

income.

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

benchmark, was down 2 basis points (bp) to 2.674%, though it

remained close to a multi-week high of 2.7% hit on Wednesday.

German 2-year yields, more sensitive to

changes in expectations for European Central Bank policy, were

off 3 bps at 1.911% while Italy's 10-year yield fell 1 bp to

3.703%.

Markets are betting on a 25-bps cut at the European

Central Bank's next meeting in June.

"We pulled back a bit but fundamentally I think we have

an upward pressure on rates," Mohit Kumar, chief economist and

strategist for Europe at Jefferies, said.

"That said, 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," Kumar said.

Closely-watched U.S. data due later on Thursday includes

April retail sales and jobless figures.

The figures will give investors an insight into the

state of the U.S. economy amid worries about U.S. President

Donald Trump's tariffs announced six weeks ago which traders

fear are driving U.S. inflation and raising the risk of a global

recession.

A relief rally spurred by a U.S.-China truce on Monday

has faded. Even so, the S&P 500 is now above where it was before

April 2.

"There seems to be a mispricing, it's odd that equities

are higher now than where they were before Trump announced the

tariffs," Richard McGuire, head of rates strategy at Rabobank,

said. The effective tariff rate is still notably higher than it

was before April 2, he added.

"The de-escalating of the trade war to our mind doesn't

address what we believe to be the key element here... you don't

need to worry about the details of the policy making, but the

volatility."

"The policymaking itself is generating considerable

uncertainty and to our minds this uncertainty has not been

dispelled by the de-escalation" McGuire said.

Elsewhere, official figures showed Britain's economy

grew by a better-than-expected 0.2% in March, while Q1 GDP

figures for the euro zone showed the economy grew slower than

initially estimated, but employment held up well.

Traders are also digesting data showing euro zone

industrial output unexpectedly surged in March.

The spread between Italian and German yields - a market

gauge of the risk premium investors demand to hold Italian debt

- was at 100.20 bps, after reaching 93.80 on

Tuesday, its lowest since April 2021.