LONDON: Government bond yields in the euro area were a touch lower on Tuesday, with concern about U.S./European trade tensions providing some support to safe-haven debt markets a day ahead of a European Central Bank meeting.
The U.S. Trade Representative on Monday proposed a list of European Union products ranging from large commercial aircraft and parts to dairy products and wine on which to slap tariffs as retaliation for European aircraft subsidies.
European stocks markets opened broadly lower, feeding through to some support for regional bond markets.
Analysts said there was also some focus on the International Monetary Fund, which publishes its half-yearly World Economic Outlook later this session.
"For today, there are two factors that might play a role -- the IMF's update on the world economic outlook which may see some pessimism," said KBC rate strategist Mathias van der Jeugt.
"Overnight, we've also had news the U.S. is pondering tariffs on EU goods which is a potential surprise and could hurt risk sentiment."
Germany's benchmark 10-year bond yield hovered just below zero percent in early Tuesday trade, but is up 9 basis points from 2-1/2 year lows of minus 0.09 percent hit last month.
Most other long-dated bond yields in the currency bloc were also a touch lower on the day.
Overall trade was expected to be subdued ahead of Wednesday's European Central Bank meeting.
This month's ECB meeting takes place against a backdrop of speculation about whether the central bank will in coming months adopt tiered interest rates to alleviate pressure on the banking sector from negative interest rates.
ECB policymakers debated the risk that ultra-low interest rates pose to banks at their March meeting, minutes released last week showed.
On Monday, German bank lobby group BdB urged the ECB to lower the charge that banks pay on some of their excess cash by introducing a tiered deposit rate.
While the ECB is likely to face questions about tiered rates and its plan to launch a fresh round of cheap multi-year loans for banks, analysts said details were likely to come later on.
"The next big meeting is June, so I'm not holding my breath about new details this week," said Frederik Ducrozet, global macro strategist at Pictet Wealth Management in Geneva.
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