Euro zone government bond yields edged higher on Monday after dropping late last week as markets increased their bets on the European Central Bank monetary easing path.

Investors are looking ahead to key economic data, including euro area PMI on Thursday and the German business climate index on Friday.

Analysts argued right after the ECB policy meeting on Thursday that comments from ECB President Christine Lagarde sounded like an implicit downgrade of economic projections.

Germany’s two-year bond yield, which is more sensitive to ECB rate expectations, was flat at 2.10%.

Money markets priced an ECB deposit facility rate at just below 2% in June 2025.

They also fully discounted a 25 bps rate cut in December and around a 30% chance of a 50 bps move, from just fully pricing a 25 bps cut on Thursday before the ECB meeting. Germany’s 10-year bond yield, the benchmark for the euro zone bloc, rose 0.5 bps to 2.19%.

The gap between French and German 10-year yields - a gauge of the risk premium investors demand to hold France’s government bonds - was last at 71.50 bps, from around 75 bps seen before Prime Minister Michel Barnier presented the budget bill for 2025.

Euro zone government bond yields drop after inflation data

The French National Assembly will start discussing the budget on Monday.

Italy’s 10-year yield was one bp higher at 3.37%, and the gap between Italian and German yields held steady at 116.50 bps, after hitting 116, its lowest level since March.