European bond yields steady near multi-month lows

LONDON, Oct 3 (Reuters) - Euro zone government bond yields were steady on Thursday, as markets weighed expectations for European Central Bank interest rate cuts and the escalating conflict in the Middle East.

Germany's 10-year yield, the benchmark for the euro zone, was last little changed at 2.1%. It fell to its lowest level since Jan. 4 on Tuesday at 2.011%, before rebounding on Wednesday. Bond yields move inversely to prices.

Weak growth indicators in the euro area and inflation falling below the ECB's 2% target have pushed yields lower recently, and prompted major Wall Street banks to bring forward easing expectations for the ECB, with most now expecting the central bank to lower borrowing costs in October.

Market pricing reflects around a 95% chance of a 25 basis point (bp) rate cut this month, following quarter-point reductions at the June and September policy meetings.

Worries about the escalating conflict in the Middle East have also helped drive German yields lower, as investors put more emphasis on the relative safety of German bunds.

Germany's two-year yield was down 1 bp at 2.039%.

Italy's 10-year yield was little changed at 3.44%, after hitting its lowest since August 2022 on Tuesday at 3.338%. The spread between Italian and German 10-year yields was steady at 133 bps. (Reporting by Samuel Indyk; Editing by Mark Potter)