Euro area yields edge up from multi-week lows before BoE policy meeting

By Stefano Rebaudo

Feb 6 (Reuters) - Euro area government bond yields edged higher on Thursday, as investors awaited the Bank of England's policy decision while weighing concerns about U.S. tariffs and their impact on European Central Bank monetary policy.

The BoE is widely expected to cut rates by 25 basis points and provide some guidance about the easing cycle.

Borrowing costs hit multi-week lows on Thursday amid concerns that potential U.S. tariffs could have a deflationary effect on the European economy and prompt the ECB to deepen its easing cycle.

Germany's 10-year bond yield, the benchmark for the euro zone bloc, rose 1.5 basis points (bps) to 2.37% after hitting 2.345% the day before, its lowest since Jan. 2.

Markets priced in an ECB deposit facility rate at 1.9% in December from 1.85% on Wednesday and from 1.95% late Friday before the announcements on tariffs by U.S. President Donald Trump.

Germany's two-year bond yield, more sensitive to European Central Bank rate expectations, was up one bp at 2.06%.

The yield spread between OATs and Bunds -- a market gauge of the risk premium investors demand to hold French debt -- was at 72 bps after French Prime Minister Francois Bayrou on Wednesday survived two no-confidence votes in parliament, paving the way for the adoption of a much-delayed 2025 budget seen as key to cutting France's crippling debts.

The yield gap hit 69.60 bps on Wednesday, its tightest level since Oct. 31. It widened to around 90 bps, its highest since 2012, in mid-January and end-November amid fears that France would be unable to cut its growing budget deficit.

Italy's 10-year yield rose 1.5 bps to 3.46%, and the gap between Italian and German yields stood at 108 bps.

(Reporting by Stefano Rebaudo, editing by Shri Navaratnam)