Euro zone bond prices hold gains ahead of US data
Updates at 1020 GMT
By Alun John
LONDON, July 11 (Reuters) -Euro zone bond yields steadied on Thursday after a fall the previous day, and the gap between German and French 10-year yields narrowed further as investors unwound the political risk premium built ahead of French parliamentary elections.
A combination of minor data points, including a dovish shift from the Reserve Bank of New Zealand and an unexpected fall in Norwegian inflation, gave investors some clarity around slowing inflation and central bank policy easing, and drove the fall in yields on Wednesday, Rabobank analysts said in a note.
But U.S. inflation data due at 1230 GMT - the week's key scheduled event for markets - will weigh far more heavily, and that meant traders on Thursday were nervous about placing large bets ahead of the release.
"That CPI release is in particular focus, because there’s been mounting anticipation that the Federal Reserve might still deliver two rate cuts this year, with September and December seen as the most likely dates," Jim Reid, global head of macro research at Deutsche Bank, said in a morning note.
"If there is positive news on inflation and we get another soft print, then that momentum for a rate cut is likely to build further."
Germany's 10-year bond yield DE10YT=RR, the benchmark for the euro zone bloc, was little changed at 2.54% after a 2-basis-point fall Wednesday.
France's 10-year yield was also steady at 3.19% after a near 7-bp move the previous day, and the gap between the two - a now closely watched gauge of French risk - briefly touched 62.4 basis points in early trading, its lowest since June 13. FR10YT=RR, DE10FR10=RR
That gap reached its widest since 2012 in late Juneat 85 bps as investors feared France's parliamentary election would lead to a majority for high-spending parties, instead of the legislative gridlock that actually resulted.
Italy's 10-year yield IT10YT=RR was little changed at 3.86%, after a 9-bps fall on Wednesday that sent it to a one-month low.
Germany's two-year bond yield DE2YT=RR, which is more sensitive to European Central Bank rate expectations, was little changed at 2.9%.
Reporting by Alun John
Editing by Bernadette Baum
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