Euro area yields edged up after sharp fall, Fed, BoE in focus

By Stefano Rebaudo

Nov 7 (Reuters) - Euro zone short-dated government bond yields edged up on Thursday after falling sharply the day before, with investors focusing on the Federal Reserve and the Bank of England policy meetings later in the session.

Markets showed quite a muted reaction after Germany's ruling coalition collapsed as Chancellor Olaf Scholz sacked his finance minister and paved the way for a snap election.

European yields dipped on Wednesday as markets positioned for U.S. policies which might trigger a trade war and hurt the bloc's economy after Donald Trump won the presidential election. However, uncertainty remains about the specific nature of Trump's policies.

Germany's 2-year yield, which is more sensitive to European Central Bank rate expectations, rose 0.5 basis point (bps) to 2.19%, after falling 14.5 bps the day before.

Money markets priced in a depo rate at 2.02% in June , from around 2% the day before. ECB euro short-term rate forwards implied a depo rate just below 2.2% on late Tuesday.

Germany's 10-year government bond yield, the euro area's benchmark, was up 1.5 bps at 2.41%, after dropping 4 bps on Wednesday.

Italian 10-year yield, the benchmark of the euro area's periphery, rose 0.5 bps to 3.73%.

The spread between Italian and German 10-year yields - a gauge of risk premium investor demand to hold Italian debt - widened slightly to 130.5 bps.

(Reporting by Stefano Rebaudo, editing by Shri Navaratnam)