*

Safe-haven bids for Bunds ease after reassurance on

US-China

tensions

*

Trade uncertainties to persist, BofA economists say

*

Markets price in a 70% chance of additional ECB rate cut

in 2026

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French yields move in line with Southern European peers

(Recasts, adds analyst comment)

By Stefano Rebaudo

Oct 17 (Reuters) - Bund yields were on track for a

fourth straight weekly drop, as investors sought safe-haven

assets amid mounting concerns over a U.S. government shutdown,

renewed U.S.-China trade tensions, and new signs of credit

stress in the U.S. banking sector.

Yields across the bloc edged higher late on Friday, after

hitting multi-month lows early in the session, as Wall Street

futures trimmed losses after U.S. President Donald Trump

confirmed his meeting with Chinese President Xi Jinping was

still on.

Trump said on Friday his proposed 100% tariff on goods from

China would not be sustainable, adding that he would meet with

Chinese President Xi Jinping in two weeks and that he thought

things would be fine with China.

U.S. bank stocks, including Zions Bancorporation, Jefferies,

and Western Alliance, fell sharply on Thursday as investors grew

uneasy about risk in the sector, which has been shaken by

exposure to two auto bankruptcies.

Germany's 10-year Bund yields, the euro area's benchmark,

were flat at 2.57%, after hitting 2.523% early in the session,

its lowest since June 25. They were set to end the week 6 basis

points lower, in their fourth straight weekly loss.

"The latest round of tit-for-tat trade measures between the

US and China reminds us that uncertainty may have reduced, but

it never really went away after the surge in the first half of

2025, and we are far from normalization," said Ruben Segura

Cayuela, economist at BofA.

"We think this persistent uncertainty is a significant

headwind to the Euro area and the global economy that is being

somewhat underestimated," he added.

Money markets ramped up bets on European Central Bank rate

cuts, amid concerns that trade tensions and credit stress could

weigh on economic growth.

They priced in about a 70% chance of a 25-basis-point ECB

rate cut by July. The depo rate is seen at

1.80% in December 2026 from the current

2%.

"While concerns over credit should not be dismissed there's

doesn't seem to be any reason for economists to revaluate their

economic outlooks at this stage," said Paul Donovan, chief

economist at UBS Wealth Management, referring to the potential

impact of credit risks.

Germany's 2-year yields, more sensitive to

expectations for ECB policy rate outlook, dropped 0.5 bps to

2.01%.

The yield gap between safe-haven Bunds and 10-year French

government bonds - a market gauge of the risk

premium investors demand to hold French debt - widened to 77

bps.

It hit 87.96 bps earlier this month, the highest level since

January 13, on concerns about the French fiscal outlook but fell

to below 75 bps after Prime Minister Sebastien Lecornu survived

two no-confidence votes in parliament on Thursday.

Italy's 10-year bond yields rose 1.5 bps to

3.37%, after hitting a fresh 10-month low at 3.342%.