Bund yields edge down from 17-month high as Bundestag discusses fiscal plans

By Stefano Rebaudo

March 13 (Reuters) - Euro area benchmark Bund yields edged down from their 17-month highs on Thursday, with German plans for a massive increase in public spending still in focus.

Election winner and likely next chancellor Friedrich Merz wants to push through his plans in the outgoing parliament because it would be harder to pass with the necessary two-thirds majority in the new Bundestag.

Germany’s Bundestag discusses on Thursday a 500 billion euro infrastructure fund and a revamp of borrowing rules.

Germany's 10-year government bond yields DE10YT=RR were down 1.5 basis points (bps) at 2.88%. They hit 2.938%, its highest level since October 2023 the day before and jumped by 44.7 bps last week in their biggest rise since February 1990.

Traders priced in an ECB depo rate of 2.07% in December EURESTECBM6X7=ICAP from 1.92% last week. They also accounted for an around 50% chance of a 25 bps rate cut in April.

The spread between 10-year overnight index swap EUREON10Y= -- regarded as a risk free rate -- and Bund yields was at -23.5 bps after hitting -29 bps last week, its lowest level since 2010, during the aftermath of the Global Financial Crisis.

Germany's 2-year yield DE2YT=RR, more sensitive to European Central Bank policy rates, was down 0.5 bps at 2.22%.

The yield gap between Italian and German bonds DE10IT10=RR -- a market gauge of the risk premium investors demand to hold Italian debt – was at 105 bps after dropping below 100 bps for the first time since 2021 last week.

The spread between French and German bonds DE10FR10=RR stood at 68 bps, at the lower end of its recent range.