Euro zone yields rise; central banks in focus

By Stefano Rebaudo

Jan 28 (Reuters) - Euro zone government bond yields inched higher on Tuesday, rebounding from Monday's decline, as investors awaited rate outlook clues from the European Central Bank and U.S. Federal Reserve policy meetings later this week.

Borrowing costs on both sides of the Atlantic fell on Monday, as investors sought refuge in safe-haven assets amid concerns over lofty valuations in tech stocks.

U.S. stock futures steadied on Tuesday after Nasdaq posted its biggest one-day percentage drop since Dec. 18 on Monday, as a low-cost Chinese artificial intelligence model prompted a steep selloff in U.S. chipmakers.

Germany's 10-year bond yield DE10YT=RR rose 3.5 basis points to 2.54%, after dropping 4 bps the day before.

Money markets priced in a 90% chance of a 25 bps ECB rate cut on Thursday IRPR and a depo rate at 2.1% EURESTECBM8X9=ICAP at the end of 2025 from the current 3%.

The U.S. Fed's Federal Open Market Committee will announce its decision on rates on Wednesday.

Germany's two-year bond yield DE2YT=RR, which is more sensitive to ECB rate expectations, was up 0.5 bp at 2.25%, after falling 4.5 bps on Monday.

Italy's 10-year yield IT10YT=RR was 1 bp higher at 3.64%. The gap between Italian and German yields > - a gauge of the risk premium investors demand to hold Italian debt - was at 110 bps after hitting a one-and-a-half-month low at 105.90 earlier in the session.