Euro area bond yields drop before US inflation data

July 15 (Reuters) - Euro area government bond yields edged lower on Tuesday as investors await U.S. inflation data later in the session which could provide clues about the Federal Reserve’s monetary path.

The U.S. figures will show how tariffs affected inflation in June after data from previous months came in cooler than economists had forecast.

German 10-year yield DE30YT=RR, the euro area’s benchmark, dropped one basis point (bp) to 2.71%.

The 30-year yield DE10YT=RR was down one bp at 3.24%, after reaching 3.26% on Monday, its highest since October 2023.

The 2-year – more sensitive to expectations for European Central Bank policy rates – was down 0.5 bps at 1.87%.

The German yield curve flattened slightly, with the spread between 10-year and 2-year yields DE2DE10=RR down 0.5 bps at 84 bps. It climbed 6.1 bps the day before in its biggest daily rise since April 7 after a jump in Japanese yields. nL1N3TB08N

The yield curve steepens when long-dated yields increase more quickly than the short-dated ones.

Markets have priced in an ECB terminal rate roughly unchanged at around 1.75–1.80% EURESTECBM4X5=ICAP, while yields on longer maturities have risen amid expectations of a significant increase in German fiscal spending.

Italy’s 10-year yields IT10YT=RR dropped 1.5 bps to 3.61%, with the spread between BTPs and Bund yields at 88 bps. It hit 84.20 bps earlier this month, its lowest level since March 2015.