Bund yields drop, traders raise bets on ECB rate cuts on US banking jitters

Oct 17 (Reuters) - Euro zone government bond yields hit fresh multi-month lows on Friday, echoing drops in U.S. yields, as growing signs of credit stress in the U.S. banking system and U.S.-China trade tensions weighed on sentiment.

Germany’s 10-year Bund yields, the bloc’s benchmark, dropped 3.5 bps to 2.531%, its lowest since June 25. DE10YT=R

Short-term U.S. Treasury yields hit multi-year lows on Friday as concerns about U.S. banks prompted nervous investors to price in more aggressive Federal Reserve rate cuts this year and next.

Money markets priced in an 80% chance of a European Central Bank 25 bps rate cut by July EURESTECBM7X8=ICAP, up from around 65% the day before.