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Bond yields steady after volatile session on Monday

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Markets focussing on negotiations and responses to tariffs

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German 2-year yield come off 2-1/2-yr low

(Updates with comments and details)

By Yadarisa Shabong

April 8 (Reuters) - Euro zone government bond yields

edged up in less volatile trading on Tuesday after wild swings

the day before as traders weighed up U.S. trade policy and hoped

negotiations with Washington could help avert an escalating

dispute.

The European Commission said on Monday it had offered a

"zero-for-zero" tariff deal as EU ministers agreed to prioritise

negotiations as U.S. President Donald Trump's broader 20% tariff

on the European Union is set to come into effect on Wednesday.

Faced with sectoral tariffs on its steel and aluminium as

well as its cars, the Commission on Monday evening proposed its

first retaliatory tariffs at 25% on a range of U.S. imports in

response to the metals tariffs rather than the broader levies.

German 10-year bond yield, the benchmark for the

euro zone bloc, steadied at 2.621%, up around 4 basis points

from the end of trading the previous day, when the yield rose 7

bps, according to LSEG data.

Euro zone bond prices were volatile on Monday as initial

buying due to safety-bids turned to heavy selling towards the

end of the European trading session due to a report of a

potential pause in tariffs.

However, that was short-lived as the White House called that

report "fake news". Yields fell back slightly after that. Yields

move inversely to prices.

Italy's 10-year yield eased to 3.862%, and the

gap between Italian and German 10-year bonds stood

at 121 bps.

'REVERSAL'

"We're seeing probably a reversal of yesterday to some

degree," RBC Capital Markets global macro strategist Peter

Schaffrik said.

"We see the curve which was steeper yesterday. We see it

being slightly flatter."

Germany's two-year bond yield, which is more

sensitive to European Central Bank rate expectations, was up 7.5

bps at 1.88%. The short-dated yield had hit a 2-1/2-year low of

1.665% on Monday.

Markets are currently pricing in a more than 85% chance of a

quarter-point cut by the ECB next week and see the key rate at

1.75% in December.

ECB policymaker Yannis Stournaras said on Tuesday that

expected higher inflation and a global trade war following U.S.

tariffs could delay the normalisation of euro zone monetary

policy.

Nomura now expects the ECB to cut rates in April in addition

to June, resulting in a terminal depo rate of 2.00% by mid-year,

it said in a note, lowering its euro area growth estimate and

raising its inflation forecast for the region due to tariffs.

Market will be looking at responses to tariffs from other

U.S. trading partners.

Trump threatened to ratchet up tariffs on U.S. imports from

China to more than 100% on Wednesday in response to China's

decision to match the "reciprocal" duties announced last week.