Euro area bond yields edge down before US CPI

By Stefano Rebaudo

Jan 15 (Reuters) - Euro area benchmark Bund yields edged lower on Wednesday, breaking a 10-day rising streak, as investors awaited U.S. consumer price inflation figures later in the session.

Strong economic data and fears that U.S. President-elect Donald Trump's policies could boost inflation have driven yields up on both sides of the Atlantic since early December.

Germany's 10-year government bond yield dropped 1.5 basis points (bps) to 2.61% after hitting a fresh 7-month high at 2.63%.

Germany's 2-year bond yield, more sensitive to European Central Bank rate expectations, fell 2 bps to 2.3% after hitting a fresh 2-1/2-month high at 2.323%.

Money markets priced in a European Central Bank deposit facility rate at over 2.1% at the end of 2025, from 1.8% in early December.

Italy's 10-year yield was down 1.5 bps at 3.82%.

The gap between Italian and German yields -- a gauge of the risk premium investors demand to hold Italian debt -- held steady at around 120 bps.

The yield spread between French and German yields stood at 84 bps, after French Prime Minister Francois Bayrou on Tuesday opened the door to renegotiating a disputed pension reform in a bid to win over left-wing lawmakers he needs to pass the 2025 budget. Such a move could increase market concerns about the government's ability to curb a burgeoning public deficit. (Reporting by Stefano Rebaudo; Editing by Bernadette Baum and Jacqueline Wong)