Euro zone bond yields jump as traders trim ECB rate cut bets

LONDON, July 24 (Reuters) - Short-dated German bond yields were set for the largest daily rise in two months on Thursday, after the European Central Bank (ECB) held rates steady and central bank President Christine Lagarde offered a more upbeat view of the economic outlook.

The interest-rate sensitive two-yr German Schatz yield rose by more than 10 basis points to 1.9%, heading for their largest one-day rise since mid-May.

At the press conference that followed the ECB's decision to leave rates at 2%, Lagarde suggested she was not overly concerned about inflation slowing below the central bank's 2% target rate as growth slowed.

"We are in a good place because our projections point to inflation stabilising at targets in the medium term," she said, noting that supply bottlenecks and trade disruption caused by tariffs could also emerge as inflationary.

Traders took this as a signal that another series of rate cuts might be unlikely next year.

"She's a bit hawkish, but it's all nitpicking. She downplayed the undershooting of inflation in 2026 and she said growth is a bit better than expected," Arne Petimezas, director of research at Afs Group in Amsterdam, said.

Meanwhile the euro zone's benchmark German 10-year yield was up 10.8 bps to 2.71%.

The euro pared its fall against the dollar, and was last down 0.15% to $1.1757.

Traders trimmed their bets for a September interest rate cut as Lagarde spoke to price in a roughly 20% chance of a 25 bps cut, down from around 32% earlier on Thursday. (Reporting by Lucy Raitano and Dhara Ranasinghe in London and Danilo Masoni in Milan; Editing by Amanda Cooper)