Euro zone bond yields ease as markets play it safe amid tariff woes

April 8 (Reuters) - Euro zone government bond yields eased on Tuesday after wild swings in the previous session as traders sought safe havens as they weighed uncertain trade policy and hoped that negotiations with the United States could help avert an escalating dispute.

The European Commission said on Monday it had offered a "zero-for-zero" tariff deal as EU ministers agreed to prioritise negotiations as U.S. President Donald Trump's broader 20% tariff on the European Union is set to come into effect on Wednesday.

Faced with sectoral tariffs on its steel and aluminium as well as its cars, the Commission on Monday evening proposed its first retaliatory tariffs at 25% on a range of U.S. imports in response to the metals tariffs rather than the broader levies.

German 10-year bond yield DE10YT=RR, the benchmark for the euro zone bloc, steadied at 2.603%, little changed from the previous day, when the yield rose 7 bps.

Euro zone bond prices were volatile on Monday as initial buying due to safety-bids turned to heavy selling towards the end of the European trading session due to a report of a potential pause in tariffs.

However, that was short-lived as the White House called that report "fake news", pushing investors to the safety of bonds again. Yields move inversely to prices.

Italy's 10-year yield IT10YT=RR eased 4.6 basis points at 3.82%, and the gap between Italian and German 10-year bonds DE10IT10=RR stood at 121 bps.

Germany's two-year bond yield DE2YT=RR, which is more sensitive to European Central Bank rate expectations, was up 2.6 bps at 1.836%. The short-dated yield had hit a 2-1/2-year low of 1.665% on Monday.

Markets are currently pricing in an 88% chance of a quarter-point cut by the ECB next week.