Euro zone government bond yields edge lower after Fed meeting

By Stefano Rebaudo

Dec 11 - Euro zone government bond yields edged down after the Federal Reserve signalled a less hawkish outlook than some investors anticipated and announced larger T-bill purchases, pushing U.S. borrowing costs lower.

The Fed cut rates on Wednesday, but suggested it would likely pause further reductions as officials looked for clearer signals about the direction of the job market and inflation that "remains somewhat elevated."

Earlier this week a batch of strong economic data and comments from European Central Bank policymaker Isabel Schnabel, who said a rate rise is more likely than a cut, pushed Bund yields to their highest point since March, when Germany unveiled a massive increase in fiscal spending.

Germany's 10-year yields, the euro area's benchmark, were down one basis point (bp) at 2.85%. They hit 2.894% on Wednesday, their highest level since mid-March.

Benchmark 10-year U.S. Treasury yields fell 4 bps to 4.12% in early London trading after dropping 2 bps a day earlier.

Germany's 30-year yields, which are more sensitive to long-term fiscal concerns, fell 0.5 bps to 3.46% after hitting 3.488% on Wednesday, the highest point since summer 2011. Yields on German 2-year Schatz fell 1.5 bps to 2.16%.

Market bets on ECB rate cuts were roughly unchanged, with traders pricing in a chance of about 5% of an easing move next summer and a 55% chance of a rate rise by March 2027.

(Reporting by Stefano Rebaudo; Editing by Thomas Derpinghaus)