Euro zone bond yields tick higher as focus shifts to US tariff deadline

Germany's benchmark 10-year Bund yields DE10YT=RRincreased 2 bps to 2.583%, largely in line with moves in 10-year Treasuries which were last at 4.3556% US10YT=RR.

"Today is all about what Trump does in terms of his tariffs," said Mohit Kumar, chief financial economist for Europe at Jefferies, who said markets were in a holding pattern until it became clear which countries might face higher tariffs.

President Donald Trump said on Sunday the United States was close to finalising several trade agreements in the coming days and would notify other countries of higher tariff rates by July 9, with the higher rates to take effect on August 1.

"Where euro zone markets are concerned, the key question is: is Europe going to be part of that list or not?," said Kumar, whose base case is that the region will not feature, though he thinks Japan might be included.

Whatever the outcome, markets have been braced for heightened volatility this week ahead of the original July 9 deadline, with more concrete details on Trump's plans for import tariffs with the United States' major trading partners set to become clear.

German two-year yields DE2YT=RR, typically more sensitive to shifts in interest rate expectations, were up by 1 basis point to 1.82% but remained close to a three-week low.

Italian 10-year yields IT10YT=RR rose 2.4 bps to 3.495%, with their premium over German Bunds at 90.4 bps DE10IT10=RR, according to LSEG data.

Meanwhile, Britain's 10-year gilt yield GB10YT=RR was down 1.3 basis points at 4.54%, though yields remain elevated following a sharp sell-off in UK government bonds last Wednesday, which was spurred by a U-turn on planned government cuts to welfare spending.

Elsewhere, German industrial production rose more than expected in May thanks to the automotive industry and energy production, the federal statistics office said on Monday.

Investor sentiment in the euro zone improved more than expected in July to hit its highest level in more than three years, a survey showed on Monday, as the bloc's economic recovery broadened.

Markets are currently placing a 86% bet on no change at the European Central Bank's next meeting, set for July 23 IRPR, with an outside chance of a 25 bps rate cut.

"The ECB is in a fantastic place, in the sense that rates are neutral, inflation is going to 2%, growth is fine - it's not great - but we're far from recession level," said Kumar.