(Recasts, adds background throughout)

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German 10-year bond yields rise for fourth 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 coming from euro zone, Germany, Italy,

Netherlands,

according to LSEG IFR

By Medha Singh, Stefano Rebaudo

May 13 (Reuters) - Euro zone yields steadied on Tuesday

after rising sharply the day before, when easing trade tensions

reduced concerns about economic growth and led investors to

scale back bets on European Central Bank interest rate cuts.

Weekend talks between U.S. and Chinese negotiators yielded a

90-day pause in their trade dispute and sharply lowered the

tariffs that the world's top two economies had imposed on each

other.

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

rose 2.5 basis points (bps) to 2.66%, after reaching 2.68%, a

fresh one-month high. It jumped 9 bps on Monday, in its biggest

daily rise since early March when Germany announced plans for a

massive increase in fiscal spending.

Goldman Sachs ( GS ) raised on Tuesday its forecast for the euro area's

economic growth and said it now expects the ECB to reach a

terminal rate of 1.75% in July, revising its previous forecast

of 1.5% by September.

Traders now expect the ECB's deposit facility rate to be at

1.79% by the end of this year, up from

1.67% late on Friday and from below 1.55% after the ECB

suggested in mid-April it will cut rates in response to a

possible tariff-induced economic slowdown.

They also price in an almost 95% chance of a rate cut in

June and less than a 20% chance of a second easing in July.

U.S. 10-year Treasury yields fell briefly after Consumer

Price Index for April data mostly came in below forecasts,

showing only a moderate immediate impact of the sharp import

tariff hikes announced by the Trump administration early last

month.

The German two-year yield, more sensitive to ECB

policy rates, was up one bp at 1.93%, after rising 13.5 bps on

Monday.

"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.

GERMAN INVESTOR MORALE RISES

Longer-dated bonds were hit harder on Tuesday, with yields on

the 30-year German bond up 3.5 bps at 3.12%.

The European Commission is analysing the trade deal struck

last week between the U.S. 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 in April, the

ZEW economic research institute

said.

Italy's 10-year yield rose 2 bps to 3.69%,

leaving the spread between Italian and German yields - a market

gauge of the risk premium investors demand to hold Italian debt

- at 100 bps.

The ECB 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 central bank works. The document is

likely to be finalised early this 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.