Euro zone yields on track for a weekly drop, Middle East in focus
Euro zone government bond yields were on track for a weekly decline as the Israel-Iran air war entered its eighth day, with investors downplaying inflation concerns while awaiting clarity on a potential U.S. involvement in the conflict.
President Donald Trump will make a decision in the next two weeks, the White House said on Thursday, raising pressure on Tehran to come to the negotiating table.
German 10-year yields, which serve as the benchmark for the wider euro zone, fell 2.5 basis points (bps) to 2.49%, and were set to end the week 4.5 bps lower.
Money markets priced in a European Central Bank deposit facility rate at 1.77% in December, compared with 1.75% last week.
The yield on the German two-year bonds, which are more sensitive to expectations for ECB policy rates, was down 1.5 bps at 1.83%.
A drop in appetite for risk assets widened yield spreads for government bonds of highly indebted countries, such as Italy and France, against safe-haven German Bunds.
Italy's 10-year yields dropped 4.5 bps to 3.50%. Italian yield gap against Bunds - a market gauge of the risk premium investors demand to hold Italian debt – tightened to 100 bps on Friday, but was set for its biggest weekly rise in a year.
(Reporting by Stefano Rebaudo, editing by Tomasz Janowski)
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