Euro zone yields dip, tracking Treasury, after US shutdown, jobs data

By Joice Alves and Stefano Rebaudo

Oct 1 (Reuters) - Euro zone government bond yields edged lower on Wednesday, mirroring U.S. Treasuries after a U.S. government shutdown began, while new inflation data reinforced bets on the European Central Bank keeping interest rates steady for some time.

The U.S. federal shutdown commenced hours after the Senate rejected a short-term spending measure that would have kept government operations afloat through November 21.

In the euro zone, new data indicated that inflation accelerated last month, which could convince the ECB to leave interest rates alone for now.

Germany’s 10-year Bund yields DE10YT=RR, the bloc’s benchmark, fell 0.4 basis point to 2.71%.

U.S. Treasury benchmark 10-year yields US10YT=RR fell 2.3 bps to 4.12% as private jobs data continued to suggest mounting weakness in the labour market, while the government shutdown left investors wondering about the impact on markets.

"The Fed (Federal Reserve) is set on the path of rate cuts and that I think explains why the market is not too bothered (so far by the shutdown)," said Willem Sels, Global CIO at HSBC Private Bank.

"Typically what you get is a little bit of a fall in Treasury yields," he said.

Tuesday’s economic figures from the single currency bloc also failed to trigger price action in the sovereign bond markets.

US SHUTDOWN DURATION IS KEY

Analysts said the impact of the U.S. shutdown would depend on its duration, noting that the economic effects have historically been temporary.

This time, however, the situation is aggravated by the possibility of a longer-than-usual hiatus and threats of permanent government layoffs.

"The U.S. government shutdown may mean that we do not get the usual start of the month NFP report for September," added Kathleen Brooks, research director at XTB.

Market observers expect no rate cuts from the ECB until at least July 2026, with about a 30% chance of a 25 bps ECB rate cut then EURESTECBM7X8=ICAP.

The current level of interest rates in the euro zone is "adequate" and any future monetary policy decisions will take into account global geopolitical uncertainties, ECB Vice-President Luis de Guindos said on Tuesday.

The yield gap between safe-haven Bunds and 10-year French government bonds DE10FR10=RR — a market gauge of the risk premium investors demand to hold French debt — was 80 bps, close to its seven-month high, after new French Prime Minister Sebastien Lecornu said last week he aimed for a budget deficit of around 4.7% of GDP in 2026.