Euro zone government bond yields edge lower before PMI data

By Stefano Rebaudo

Jan 24 (Reuters) - Euro zone government bond yields edged down on Friday as investors await Purchasing Managers Index data later in the session, which could affect expectations for the European Central Bank's policy path.

Benchmark German Bund yields were on track to end the week roughly unchanged after showing a muted reaction to remarks on tariffs by U.S. President Donald Trump while investors shifted their focus to the ECB policy meeting next week.

Germany's 10-year bond yield was down one basis point (bp) at 2.50%, and was set to record a 0.5 bps weekly rise.

U.S. Treasury yields dropped, with the 10-year down 2 bps at 4.62% in early London trade.

Germany's two-year yield, more sensitive to ECB rate expectations, fell one bp to 2.23%.

Money markets are pricing in an ECB deposit facility rate at 2.05% at the end of 2025, from the current 3%.

Italy's 10-year yield was flat at 3.64%.

The gap between Italian and German yields - a gauge of the risk premium investors demand to hold Italian debt - stood at 110 bps. It hit 104.5 bps in early December, its tightest since October 2021.

The yield spread between French and German bonds was 77 bps. (Reporting by Stefano Rebaudo. Editing by Mark Potter)