European bond yields edge lower ahead of US inflation data

LONDON, Sept 10 (Reuters) - Euro zone government bond yields eased on Wednesday as investors awaited U.S. inflation data that could help define the size of an expected Federal Reserve rate cut next week.

French yields were steady after French President Emmanuel Macron named loyalist Sebastien Lecornu as prime minister.

U.S. producer price inflation data due later on Wednesday and a consumer price inflation report on Thursday will give investors more clarity on the impact from U.S. tariffs on prices, after a dismal jobs report last week cemented bets on the Fed cutting rates at its September 16-17 policy meeting.

Money markets sees a 93% chance of a 0.25% rate cut and a 7% chance of a bolder 0.50% cut, according to LSEG data.

German 10-year bond yields DE10YT=RR, the benchmark for the euro zone bloc, fell 1.7 basis points to 2.64%.

"Another hot reading today could temper expectations for aggressive Fed easing," said Joshua Mahony, Chief Market Analyst at Scope Markets.

"With markets finely poised ahead of tomorrow’s inflation test, today’s release is set to play a crucial role in shaping sentiment into the end of the week."

FRANCE'S NEW PM

In France, the choice of Lecornu, a one-time conservative protege who rallied behind the 2017 presidential run, indicated Macron's determination to press on with a minority government that will not rip up his pro-business reform agenda, under which taxes on business and the wealthy have been cut and the retirement age raised.

The French 10-year yield FR10YT=RR was little changed at 3.47%. The yield gap between 10-year French and German government bonds FR10YT=RR, DE10YT=RR — a market gauge of the risk premium investors demand to hold French debt — was at 82 bps, LSEG prices showed.

Elsewhere, Italy's 10-year yield IT10YT=RR was lower by 1.2 basis points at 3.50%.