Euro zone government bond yields slip before economic data

By Stefano Rebaudo and Amanda Cooper

LONDON, Jan 5 (Reuters) - Euro zone government bond yields edged lower on Monday as investors braced for European and U.S. economic data.

The U.S. strike on Venezuela and capture of President Nicolas Maduro sparked a pickup in investor risk appetite that translated into gains in stocks and cryptocurrencies.

In Europe, attention will turn to preliminary December inflation figures, with readings from Germany and France due on Tuesday and a euro zone-wide report on Wednesday.

"Our more upbeat view on 2026 gross domestic product growth led to a modest upward revision to our core inflation forecast, but we are still looking for a further deceleration in core harmonised index of consumer prices (HICP) inflation to 1.8% on average in 2026," said Giada Giani, an economist at Citi.

"We pencil a step lower in headline HICP inflation in December, back to 2.0%, while core may stay put at 2.4% but with risks tilted to the downside," she added.

In the U.S., the spotlight will be on Friday's December jobs report, after ADP employment and JOLTS data on Wednesday.

The yield on the German 10-year Bund DE10YT=RR, which serves as a benchmark for the wider euro zone, dropped 2.5 basis points (bps) to 2.87%, having risen 3 basis points (bps) last week. It climbed to 2.917% before Christmas, just a couple of bps shy of March highs, when Germany struck a political deal to ramp up infrastructure and defence spending.

Investors were also focused on Germany’s fiscal stimulus, which is expected to increase bond supply, pushing prices lower and yields higher.

Two-year Schatz yields DE2YT=RR were down 4 bps at 2.13%.

Deutsche Bank strategist Jim Reid said geopolitical events would likely remain to the fore, although in terms of market risk events, Friday's U.S. monthly jobs report was key.

"This isn’t a print expected to have too many implications for near-term ECB policy, with markets expecting them to keep rates on hold for the rest of the year," Reid said in a note, referring to the euro area's inflation data.

This week will also bring new bond supply in Europe. Commerzbank analysts estimate some 33 billion euros ($39 billion) from Germany, France, Spain, Austria and Italy.

($1 = 0.8557 euros)