Euro zone government bond yields edge down, US data in focus

By Stefano Rebaudo

Jan 14 (Reuters) - Euro zone government bond yields edged down on Wednesday, with investors focused more on economic fundamentals than concerns about Federal Reserve independence and geopolitics.

A reading on U.S. inflation for December ?came in as expected on Tuesday, after euro zone borrowing costs recorded their steepest ?decline since March last week on weak economic data.

Investors ?await U.S. retail sales and producer price ?data later in ?the session.

Germany's 10-year yields, the euro zone's benchmark, were down 0.5 basis points ?at 2.81%. They dropped 7.3 bps ?last week, the sharpest fall since the week beginning March 31.

They climbed to 2.917% before Christmas, ?just a couple of basis points ?shy ?of early March highs, when Germany struck a political deal to ramp up infrastructure and defence spending.

The sell-America trade ?was muted in sovereign bonds and equities on Monday after the U.S. Department of Justice threatened to indict Federal Reserve Chair Jerome Powell, while the dollar weakened.

The yield gap between U.S. Treasuries and Bunds was at 135 bps on ?Wednesday, ?after rising 3 bps to 137 bps on Monday. It hit 122.86 in mid-December, the lowest since June 2023, ?as expectations grew that the Fed would cut rates further while the European Central Bank was seen holding steady through all of 2026.

German 30-year yields were flat at 3.45%.

German 2-year yields, more sensitive to expectations for policy rates, were roughly unchanged at 2.10%.

Italy's ?10-year government bond yields dropped one bp to 3.44%, with the gap versus Bunds at 62.50. It reached 60 bps on January 2, the lowest ?since September 2008. (Reporting by Stefano Rebaudo. Editing by Mark Potter)