Euro zone yields mixed before data, Austrian risk premium flat after elections

By Stefano Rebaudo

Sept 30 (Reuters) - Euro zone government bond yields edged higher on Monday before German inflation data later in the session, which could affect expectations for the European Central Bank monetary policy.

Data showed on Friday that French and Spanish consumer prices rose less than anticipated in September, leading investors to increase their bets on future ECB rate cuts. Figures from the euro area are due on Tuesday.

Germany's 10-year bond yield, the benchmark for the euro zone bloc, was flat at 2.13%.

Markets priced in an 80% chance of a 25 basis points (bps) rate cut by the ECB in October and 53 bps of cuts by December not far from the levels seen late Friday.

Germany's two-year bond yield, which is more sensitive to ECB rate expectations, was down one bp at 2.10%. It hit 2.065% on Friday, its lowest level since December 2022.

The gap between Austrian and German 10-year yields - a gauge of the risk premium investors demand to hold Austria's government bonds - widened 0.5 bps to 50 bps after the far-right won the parliamentary elections.

The Eurosceptic, Russia-friendly Freedom Party (FPO) gained 28.8% of the vote, but leaders of Austrian political parties united to reject the idea of forming a coalition with FPO.

The gap between French and German 10-year yields was at 79.5 bps. It reached its widest since 2012, beyond 85 bps during France's parliamentary elections.

Italy's 10-year yield was up 0.5 bps at 3.46%, and the gap between Italian and German yields tightened to 132 bps.

(Reporting by Stefano Rebaudo, editing by Ros Russell)