Euro Zone Government Bond Yields Rise Amid Key Economic Data Anticipation

Euro zone government bond yields edged up as investors awaited inflation data from Italy, France, and Spain, and the first round of the French elections. The German 10-year bond yield rose, with the gap between French and German yields reflecting risk premiums. ECB rate expectations influenced short-term German yields.

Euro zone government bond yields edged up on Wednesday as investors were on hold before inflation data from Italy, France and Spain due on Friday and the first round of the French elections during the weekend. German 10-year bond yield, the benchmark for the euro area, rose 1.5 basis points (bps) to 2.43%, after dropping one bp the day before.

The gap between French and German 10-year yields -- a gauge of risk premium investors demand to hold French government bonds – was 70 bps. It hit its highest level since February 2017 at around 80 bps the day after President Emmanuel Macron called for snap elections. Italy's 10-year yield was unchanged at 3.94%, with the Italian-German yield gap at 150 bps.

Germany's two-year bond yield, which is more sensitive to European Central Bank rate expectations, was up 0.5 bps at 2.81%. Markets have priced in a cumulative 68 bps of ECB monetary easing this year, implying an additional 25 bps rate cut and a 70% chance of a third move.

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