Euro area bond yields fall, traders see stronger odds of big Fed cut

Sept 13 (Reuters) - Euro zone government bond yields fell on Friday, mirroring a decline in U.S. Treasury yields after media reports raised the chances of a big rate cut by the Federal Reserve next week.

The German 10-year bond yield, the benchmark for the euro zone bloc, fell 3.4 basis points (bps) to 2.125%, while the two-year bond yield, which is more sensitive to European Central Bank (ECB) rate expectations, fell 4.5 bps to 2.19%.

The yield on two-year Treasury notes fell 6.3 bps to 3.585% after the Wall Street Journal and the Financial Times reported it might be a close call next Wednesday, surprising markets that had assumed the Fed would start with a quarter-point move.

The bloc's bond yields edged higher on Thursday after the ECB cut rates as expected and tweaked its economic forecasts, leading markets to slightly reduce their bets on how much the central bank might ease policy this year.

Italy's 10-year yield fell 3.9 bps? to 3.52%, and the gap between Italian and German bond yields stood at 138 bps, mostly unchanged on the day. (Reporting by Sruthi Shankar in Bengaluru; Editing by Amanda Cooper)