Bund yields hit a fresh 2-month high before German inflation data

By Stefano Rebaudo

Jan 6 (Reuters) - Euro zone benchmark Bund yields hit a fresh two-month high on Monday in thin holiday trading as markets awaited German inflation figures due later in the session.

Euro area borrowing costs rose on Friday after data showed German unemployment climbed less than expected in December.

Many European markets are closed on Monday, including in Italy and Spain.

Germany's 10-year government bond yield DE10YT=RR was up 2 basis points (bps) to 2.44%, after hitting 2.451%, its highest level since Nov. 7.

Germany's 2-year yield DE2YT=RR, which is more sensitive to expectations for European Central Bank rates, rose 0.5 bps to 2.18%, after reaching 2.197%, its highest since Nov. 18.

A stronger economy could lead the European Central Bank to be more cautious when it comes to interest rate cuts.

Markets priced in an ECB deposit facility rate at 2.08% in July 2025, from 2% late on Friday and 1.9% before Christmas. EURESTECBM5X6=ICAP The depo rate is at 3%.

The gap between French and German bond yields - a gauge of the premium investors demand to hold French debt – widened 2 bps to 84.70 bps DE10FR10=RR. It jumped up to around 90 bps in the summer as elections plunged the country into political turmoil.

France failed to approve a budget for 2025 before year-end, and President Emanuel Macron had to name his fourth prime minister of 2024, centrist veteran Francois Bayrou, in December.

Italy's 10-year yield IT10YT=RR rose one bp to 3.61%, and the gap between Italian and German yields DE10IT10=RR stood at 115.5 bps.

(Reporting by Stefano Rebaudo, Editing by Bernadette Baum)

((stefano.rebaudo@tr.com))