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

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 outlook.

Euro zone borrowing costs hit multi-week lows on Wednesday 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 one bp to 2.37% on Thursday after hitting 2.345% the day before, its lowest since Jan. 2.

"While we are not expecting today's BoE meeting to be a significant near-term market mover, not least given wider market volatility and with payrolls tomorrow, it could still help set up for a dovish pivot later," said Jamie Searle, European rate strategist at Citi, referring to Friday's U.S. jobs data.

Investors have focused more on economic data since U.S. President Donald Trump paused the announced tariffs on Canada and Mexico. U.S. job figures on Friday could provide more clues on the Federal Reserve policy path.

"The outcome for Europe remains uncertain," said Rune Thyge Johansen, an economist at Danske Bank, referring to possible U.S. tariffs on imports from Europe.

"We anticipate a limited short-term growth impact in the euro area. Yet, the risks are clearly tilted toward a more negative effect as tensions could escalate."

Some analysts said the demand shock facing euro zone exporters in the event of higher U.S. tariffs was likely more significant than the inflationary effect of potential European Union retaliatory tariffs.

Money markets priced in an ECB deposit facility rate at 1.91% in December from 1.85% on Wednesday.

Germany's two-year bond yield, more sensitive to ECB rate expectations, was up 2 bps at 2.057%.

The yield spread between OATs and Bunds - a market gauge of the risk premium investors demand to hold French debt - was at 70.5 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 yields gap hit 69.60 bps on Wednesday, its tightest level since October 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 0.5 bps at 3.45%, and the spread between Italian and German yields stood at 107 bps. (Reporting by Stefano Rebaudo Editing by Mark Potter)