Euro zone bond yields dip before US data, eyes on UK election
Updates at 1105 GMT
By Harry Robertson
LONDON, July 5 (Reuters) -Euro zone bond yields fell slightlyon Friday morning as traders waited for key U.S. jobs data later in the day, while also weighing up a landslide Labour victory in Britain's general election.
Germany's 10-year bond yield DE10YT=RR, the benchmark for the euro zone bloc, fell 2 basis points (bps) to 2.562%. Yields move inversely to prices.
French and Italian bond yields fell further, keeping up the recent trend of a decline in the risk premiums investors demand to hold those countries' bonds.
A poll on Wednesday showed Marine Le Pen's far-right Rassemblement National party is likely to fall short of a majority in Sunday's French parliamentary election, soothing investor nerves about the party's potential spending plans.
France's 10-year bond yield FR10YT=RR was down 3 bps at 3.245%, set to end the week around 4 bps lower.
The gap between French and German 10-year borrowing costs DE10FR10=RR - a gauge of French risk - fell to its lowest since June 13 at 67.6 bps and was last at 68.6 bps.
"The French election outcome is unlikely to stir markets as tail risks have faded," said Benjamin Schroeder, senior rates strategist at ING.
Italy's 10-year yield IT10YT=RR was lower by 6 bps at 3.95%.The gap between Italian and German bond yields DE10IT10=RR narrowed to 139 bps, around the lowest since June 13.
Markets showed little discernible reaction to Britain's general election, where Keir Starmer's Labour party swept to a landslide victory.
UK bond yields GB10YT=RR were down around 4 bps, broadly in line with European markets. The pound and UK stocks rose after the result.
The focus was on monthly U.S. jobs data, due out at 1230 GMT (8.30 a.m. ET), which is expected to show employment and wage growth cooled in June.
A string of weaker U.S. economic figures, including a big drop in a survey-based gauge of the services sector , has bolstered investor hopes that the Federal Reserve will cut rates this year and helped bond yields cool around the world.
"Soft data keeps pointing at a weakening labour market," Schroeder said. "A consensus reading or lower would help build a Fed cutting narrative for September, helping both U.S. and euro rates to fall."
Germany's two-year bond yield DE2YT=RR, which is more sensitive to European Central Bank rate expectations, was down 1 bp at 2.929%.
Reporting by Harry Robertson; Editing by Andrew Heavens and Anil D'Silva
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