European bond yields ease ahead of ECB meeting, after US producer prices

By Joice Alves

LONDON, Sept 10 (Reuters) - Euro zone government bond yields eased on Wednesday, a day before a European Central Bank meeting and after data showed U.S. producer prices unexpectedly fell in August.

Investors, expecting the ECB to keep its rate unchanged at 2% on Thursday, are focused on identifying the central bank's longer-term plans.

They expect the Fed to start a series of interest rate cuts next week after tamer-than-expected producer price inflation last month calmed worries that price pressures would hold the central bank back from policy easing.

German 10-year bond yields DE10YT=RR, the benchmark for the euro zone bloc, fell 1 basis point to 2.65%.

Julien Lafargue, chief market strategist at Barclays Private Bank, said investors should focus on the ECB's longer-term plans.

Markets are pricing in no cuts at least until December next year, according to LSEG data.

"With lingering questions around inflation dynamics, shifting trade policies, and geopolitical tensions, it seems unlikely that monetary policy will remain untouched over such an extended period," he said.

FRENCH YIELDS STEADY AS NEW PM SPEAKS

U.S. President Donald Trump on Wednesday reiterated his call for Fed Chairman Jerome Powell to make a big rate cut now.

A U.S. consumer price inflation report due 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.

Money markets see a 92.7% chance of a 0.25% rate cut and a 7.3% chance of a bolder 0.50% cut, according to LSEG data.

French yields were steady after France's new prime minister, Sebastien Lecornu, pledged to find creative ways to work with rivals to pass a debt-slimming budget, while also promising new policy directions.

The choice of Lecornu, a one-time conservative protege who rallied behind his 2017 presidential run, indicated President Emmanuel Macron's determination to press on with a minority government that would not rip up his pro-business reform agenda.

The French 10-year yield FR10YT=RR edged 1 bp lower to 3.46%. 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 80 bps, LSEG prices showed.