Euro zone government bond yields edge up, await US data

Feb 19 (Reuters) - Euro zone benchmark Bund yields edged up on Thursday, echoing moves in U.S. Treasuries, while markets indicated an about 35% chance of a European Central Bank rate cut in 2026.

Traders now see a higher probability of a rate cut by December 2026, compared with 20% last week, though expectations have eased from more than 40% on Tuesday. EURESTECBM7X8=ICAP

Fixed-income markets are expected to stay in wait‑and‑see mode ahead of a heavy slate of U.S. data due on Friday.

Euro area economic data offered some weak signals, including a European Union trade surplus shrinking further as tariffs weighed and rising Chinese imports crowded out domestic production, and German investor morale unexpectedly falling in February.

Germany’s 10-year government bond yield DE10YT=RR, the euro area’s benchmark, rose 1.5 basis points (bps) to 2.76%. It reached 2.725% on Tuesday, its lowest level since December 1, and was around 2.90% early this month.

U.S. Treasury yields rose in early London trade, with benchmark 10-year US10YT=RR up 2.5 bps at 4.10%, after climbing the day before as solid economic data reinforced expectations the Federal Reserve will keep rates on hold. It reached 4.018% on Tuesday, its lowest since November 28.

Germany’s 2-year yields DE2YT=RR, more sensitive to expectations for policy rates, were up one bp at 2.06%.

Italy’s 10-year government bond yields IT10YT=RR rose 2 bps to 3.37%. The gap versus Bunds was at 59.60 bps, after falling to 53.50 in mid-January, its lowest level since August 2008.