German government bond yields edge down, with market focus on fiscal plan
By Stefano Rebaudo
June 25 (Reuters) - German government bond yields edged lower on Wednesday, following a rise the day before, after market focus shifted to the German cabinet's approval of a draft budget with record investments.
Meanwhile, NATO leaders gathered in The Hague with European allies hoping a pledge to hike defence spending will prompt U.S. President Donald Trump to dispel doubts about his commitment to the alliance.
German 10-year government bond yields DE10YT=RR, which serve as the benchmark for the wider euro zone, fell one basis point (bp) to 2.53%.
Yields on 30-year German bonds DE30YT=RR were down 0.5 bps after climbing 5 bps on Tuesday.
Closely watched oil prices held near multi-week lows on the prospect that crude flows would not be disrupted, after a ceasefire between Iran and Israel.
Analysts argued that a spike in energy prices could have disrupted the current narrative of there being more disinflationary than inflationary pressures in the euro area and the U.S., leading markets to scale back their bets on central bank rate cuts.
Money markets priced in a European Central Bank deposit facility rate at 1.77% in December EURESTECBM4X5=ICAP from around 1.75% before the Israeli attack against Iran on June 13.
A key market gauge of euro area long-term inflation expectations EUIL5YF5Y=R was at 2.12% on Tuesday from around 2.08% on June 12.
Italy's 10-year yields dropped 1.5 bps to 3.47%. The Italian yield gap versus Bunds DE10IT10=RR — a market gauge of the risk premium investors demand to hold Italian debt — was at 93.50 bps, after tightening 5 bps the previous day.
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