Euro zone yields edge down, focus turns to Fed and ECB

Updates with latest price moves, adds quotes, adds details

By Lucy Raitano

LONDON, Jan 29 (Reuters) - Euro zone bond yields nudged lower on Wednesday as traders caught their breath ahead of the Federal Reserve's meeting later in the day and the European Central Bank's on Thursday, with looming U.S. tech earnings and lower crude prices also in focus.

Germany's 10-year yield, the benchmark for the euro zone, was last down 2 basis points at 2.54%, DE10YT=RR broadly in the middle of its recent range.

"Generally we are waiting for the Fed and the ECB, and for the earnings results of the tech companies in the States," said Kenneth Broux, head of corporate research FX and rates at Societe Generale.

He also pointed to the disinflationary effect of lower oil prices as helping longer-dated government bonds. Brent crude LCOc1 was last down 1% on the day $76.89 a barrel, having been above $80 in mid-January. O/R

The main focus for Wednesday is the U.S. Federal Reserve's interest rate decision, with the central bank widely expected to keep rates steady.

Investors will be watching chair Jerome Powell's press conference for any sense of how he is processing the latest inflation figures, Donald Trump's early economic policies and this week's tech-led equities selloff.

The latter caused traders to up bets on the scale of Fed easing they expect this year, driving a rally in U.S. and European government bonds on Monday, though they have since steadied.

The 10-year U.S. Treasury yield was last at 4.53%, 2 bps lower on the day. US10YT=RR

The ECB is expected to cut interest rates by 25 basis points when it meets on Thursday, as policymakers look to boost a sluggish economy.

Wednesday data showed bank lending to firms in the 20-nation euro area picked up last month, a sign that recent rapid interest rate cuts have started to flow through to the real economy.

Major tech earnings due after Wednesday's close could also move the dial for European bonds.

"If U.S. tech earnings underwhelm, that could spur more profit-taking in stocks and safe-haven buying in treasuries and Bunds as we saw at the start of the week," said Broux.

Numbers are due from "Magnificent 7" members Microsoft MSFT.O, Facebook-parent Meta META.O and Tesla TSLA.O.

Germany's rate-sensitive two-year yield was down 2 bps at 2.24%, DE2YT=RR and Italy's 10-year yield IT10YT=RR was down nearly 4 bps at 3.62%.

French spreads were little changed despite news that French budget talks were on the verge of collapse on Wednesday, a day after Socialist party officials pulled out of the talks.

The spread between French and German 10-year yields was last 74 bps, around its tightest since mid November. DE10FR10=RR

The latest news out of France is one of several factors keeping European bond markets in choppy waters.

"With regard to (European) spreads, they’re likely to remain fairly volatile in the near term, it’s a very uncertain political outlook in Germany and France," said Broux, also highlighting the risk of a trade war with the U.S. which would knock growth and see fixed income rally.