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Euro zone bond yields were steady on Wednesday after dipping in the previous two sessions in a sign of tentative investor relief that Donald Trump has held back from ramping up tariffs in his first days back as U.S. president.
Trump on Tuesday vowed to hit the European Union with tariffs and said his administration was discussing a 10% punitive duty on Chinese imports.
But he has stopped short of immediately imposing trade levies as he had promised during his campaign and signed a memorandum ordering officials to review trade issues by April 1.
Germany's 10-year bond yield, the benchmark for the euro zone bloc, was roughly flat at 2.484%. Yields move inversely to prices.
"There was a relief that Trump did not go with day-one tariffs," said Mohit Kumar, European economist at Jefferies.
"The uncertainty date has now shifted to April 1 when new tariff announcements could be made."
Italy's 10-year yield was little changed at 3.581%, and the gap between Italian and German bunds stood at 110 bps.
Germany's two-year bond yield, which is sensitive to European Central Bank rate expectations, was 1 basis point higher at 2.229%.
ECB officials on Wednesday backed further interest rate cuts, although their comments did little to move markets.
"The direction is very clear," ECB President Christine Lagarde told CNBC in Davos, Switzerland, about interest rates, although she appeared to argue against moving too quickly.
Bond yields climbed sharply in December and early January, driven by a sell-off in U.S. Treasuries as investors reacted to strong American growth and the potential of tariffs to be inflationary.
Germany's 10-year bond yield hit a seven-month high of 2.63% on Jan. 15 but tumbled after U.S. inflation data bolstered the case for further rate cuts and is now 14 bps below that peak.
The size and importance of the U.S. economy and dollar mean American data and markets tend to heavily influence Europe.
Strong demand among investors for euro zone government debt has also helped yields fall.
Spain on Wednesday sold new 10-year bonds in a syndication and demand surpassed 155 billion euros ($162 billion), according to a lead manager memo seen by Reuters, a new record.
France also received record demand for a syndicated sale on Tuesday.
(Reporting by Harry Robertson Editing by Gareth Jones)