German government bond yields fell on Monday, after recording their first weekly rise in more than a month on Friday, as investor focus shifted to US data and a European Central Bank policy meeting later this week.

Euro area borrowing costs fell recently as economic figures showed a bleak outlook and market inflation expectations dropped below 2%.

Germany’s 10-year yield, the euro area’s benchmark, fell 2.5 basis points (bps) to 2.09%, after rising 6 bps last week.

Money markets priced in an ECB deposit facility rate at 1.85% in July from the current 3.25%, while fully pricing a 25 bps rate cut next week and less than a 10% chance of a 50 bps move.

The gap between French and German yields – a gauge of the risk premium investors demand to hold French debt – rose one bp to 77.50 bps as investors tracked political developments after the fall of Prime Minister Michel Barnier’s government.

German yields hit multi-week highs

It hit 72.40 bps on Friday, its lowest since Nov. 21, as hopes grew that France may end up with a 2025 budget approved by parliament, while the prospect of European Union joint funding fuelled broader convergence among bond yields.

Italy’s 10-year government bond yields – the benchmark for the euro area periphery – fell 2.5 bps to 3.18%.

The BTP yield spread briefly hit a fresh 37-month low at 104.50 bps and was last at 108 bps.