Bund yields on track for first weekly drop since early December

Jan 17 (Reuters) - Euro area benchmark Bund yields were on track for their first weekly drop since early December 2024 after U.S. inflation data drove borrowing costs lower on both sides of the Atlantic.

U.S. figures released on Wednesday were weaker than expected but not enough to challenge the view that the Federal Reserve will remain on hold for now, and wait for more data and fiscal policy clarity, analysts said.

Germany's 10-year bond yield DE10YT=RR, the benchmark for the euro zone bloc, was down 1.5 basis points (bps) at 2.51% and was about to record a one bp weekly drop.

Germany's two-year yield DE2YT=RR, which is more sensitive to European Central Bank rate expectations, fell 1 bps to 2.22%, on track for a 5 bps weekly drop.

Money markets priced in a European Central Bank deposit facility rate at over 2% at the end of 2025, down from over 2.1% early this week EURESTECBM8X9=ICAP.

Italy's 10-year yield IT10YT=RR was flat at 3.66%. The gap between Italian and German yields DE10IT10=RR - a gauge of the risk premium investors demand to hold Italian debt - held steady at 111 bps.

The yield spread between French and German yields DE10FR10=RR rose 1.5 bps to 82.50 bps, after Prime Minister Francois Bayrou passed the first test of his new minority government.

(Reporting by Stefano Rebaudo, editing by Tomasz Janowski)

((stefano.rebaudo@tr.com))