Euro zone yields edge lower as traders digest last week's tectonic shift

LONDON, March 10 (Reuters) - Euro zone bond yields nudged down a fraction in early Monday trading, with the mood far calmer than last week when the announcement of a paradigm shift in German fiscal policy drove the biggest weekly selloff in German debt since the 1990s.

Germany's 10 year yield, DE10YT=RR the euro zone benchmark, was down 2 basis points on the day at 2.82%. It rose as high as 2.884% last week, its highest since October 2023.

It finished last week with a weekly rise of 40 basis points, after the parties hoping to form Germany's next government agreed to create a 500 billion euro ($543.00 billion) infrastructure fund and overhaul borrowing rules.

Analysts expect the move will boost growth, and, due to the significant increase in borrowing required, propel Germany into a new era of structurally higher government bond yields.

The gap between German and U.S. borrowing costs continued to narrow and was last 143 bps, around its lowest since July 2023, with the U.S. 10 year Treasury yield nearly 6 bps lower. US10YT=RR, US10DE10=RR

The German two year yield DE2YT=RR dipped 1.5 bps to 2.23% and Italy's 10-year yield IT10YT=RR was also a whisker lower at 3.90%.