Euro zone yields steady, markets cautious before economic data
Updates at 1455 GMT
By Stefano Rebaudo
Aug 19 (Reuters) -Euro zone government bond yields were steadyon Monday as investors braced for a week packed with economic data and a meeting of central bankers at Jackson Hole.
Investors will be looking at euro zone business activity figures and negotiated wage growth data due later in the week, which the European Central Bank will consider before its September rate decision.
Germany's 10-year government bond yield DE10YT=RR, the benchmark for the euro zone bloc, was little changed at2.256%.
Some analysts say that markets will face a reality check late this week, after recent volatility, as investors and central bankers return from holidays.
Euro area borrowing costs have tracked perceptions of risks in the U.S. economy, with U.S. Treasury yields slightly loweron Monday, continuing to reverse Thursday's big rise as investors digested data showing a resilient U.S. consumer.
"The next few weeks will likely determine whether the Federal Reserve ends up cutting by 50-75 bps this year or by 150 bps or more," Ralf Pressuer, rate strategist at BofA, said.
He said the Jackson Hole conference was the first opportunity for the Fed to push back against the implied chance of a 50-bpscut at one of the remaining three meetings of the year.
"Pricing in less than 75 bps for the remainder of 2024 needs confirmation that the July labour market report was indeed weather distorted, as well as continued strength in ISM services," he added.
Further weakness in economic data could lead to traders pricing in successive 50-bp cuts. Markets are discounting 95 bps of cuts by year-end. FEDWATCH
A decline in euro zone countries' August flash PMIs, due on Thursday, "would cast further doubt over prospects for the euro area's growth rebound, and would potentially set the stage for downward revisions to the ECB's growth forecast profile," Barclays said in a note.
Meanwhile, an upside surprise in the second quarter euro area negotiated wages indicator could lead to fresh nervousness around inflationary second-round effects.
Money markets priced in around 65 bps of ECB rate cuts in 2024 EURESTECBM3X4=ICAP, implying two 25-bpsmoves and around a60% chance of a third cut.
Investors will scrutinize comments by ECB speakers on the growth outlook amid rising risks to activity, especially in Germany.
The spread between U.S. and German borrowing costs DE10US10=RR was at 162 bps. It hit a 12-month low at around 153 bps early this month.
Italy's 10-year yield IT10YT=RR dropped 2 bps to 3.626%, with the yield gap between Italian and German bonds at 136 bps DE10IT10=RR.
Reporting by Stefano Rebaudo, editing by Emelia Sithole-Matarise and Andrew Heavens
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