Euro zone bond yields edge down ahead of inflation data

By Stefano Rebaudo

June 30 (Reuters) - Euro zone government bond yields edged down on Monday as investors awaited inflation data from German states and Italy later in the session.

Meanwhile, German data showed that retail sales and import prices fell short of expectations in May.

Trade talks are also in the spotlight after Canada scrapped its digital services tax targeting U.S. technology firms in a bid to advance stalled trade negotiations with the United States.

The yield on Germany's 10-year bond DE30YT=RR, the euro area’s benchmark, fell 1.5 basis points (bps) to 2.58%, after hitting 2.605% on Friday, its highest level since May 26.

The 30-year yield DE10YT=RR was down 0.5 bps at 3.09%, while the yield on the 2-year – more sensitive to expectations for European Central Bank policy rates – dropped one bp to 1.85%.

The German yield curve steepened last week, with the spread between 10-year and 2-year yields DE2DE10=RR recording the first weekly rise in a month.

Markets have priced in an ECB terminal rate roughly unchanged at around 1.75–1.80%, while yields on longer maturities rose on expectations of a significant increase in German fiscal spending.

Italy’s 10-year government bond yield IT10YT=RR fell 1.5 bps to 3.50%, with the spread between BTPs and Bund yields at 90.5 bps. The gap hit 84.20 bps earlier this month, its lowest level since March 2015.