Euro zone government bond yields drop after economic data

By Stefano Rebaudo

Jan 6 (Reuters) - Euro zone government bond yields fell on Tuesday after data pointed to cooling inflation and confirmed the bloc's economy lost momentum in December.

Consumer prices rose slightly less than expected in France, while climbing 1.8% in Germany's most populous state, North Rhine-Westphalia.

HCOB's final composite Purchasing Managers' Index data showed the economy expanded at a slower pace last month but ended 2025 with its strongest quarterly growth in more than two years.

Germany's 10-year yields DE10YT=RR, the euro area's benchmark, were down 2 basis points at 2.86%.

They 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.

Oil prices fell on Tuesday, further easing inflation concerns, as the market weighed the prospect of higher Venezuelan crude output following the U.S. capture of President Nicolas Maduro.

Money markets now price in virtually zero chance of an ECB tightening move by December 2026 EURESTECBM8X9=ICAP and about 24% by March 2027 EURESTECBM10X11=ICAP, compared with 10% and 30% before the data. The depo rate is currently at 2%.

German 30-year yields DE30YT=RR fell one bp to 3.50%. They reached 3.556% on December 22, their highest since July 2011, as long-dated debt prices came under pressure on expectations for heavier bond supply.

Yields on German 2-year Schatz DE2YT=RR, more sensitive to expectations for policy rates, fell 2 bps to 2.11%.

Italy's 10-year government bond yields IT10YT=RR dropped 2 bps to 3.51%, with the gap versus Bunds at 65 after reaching 60 bps last week, its lowest since September 2008.