Euro zone yields rise, German-Italian spread widens
Updates at 1451 GMT
German 10-year yield rises 9 bps
German-Italian spread widens after hitting tightest since March
Focus on European, U.S. macro data
By Stefano Rebaudo, Samuel Indyk
Oct 21 (Reuters) -Euro zone government bond yields reversed some of last week's drop on Monday amid a dearth of economic data releases as oil prices moved higher, with investors still focusing on the path of global interest rates.
Germany's 10-year bond yield DE10YT=RR, the benchmark for the euro zone bloc, rose 9 bps to 2.275%. It dropped 9 bps last week, its biggest weekly fall in six weeks, but is still up 14 bps in October. Bond yields move inversely with prices.
"There were no specific data drivers today," said Emmanouil Karimalis, macro rates strategist at UBS.
"Oil is higher today, which may explain some of the moves."
Brent crude futures LCOc1 rose over $1 per barrel on Monday after falling to their lowest since Oct. 1 on Friday.
Meanwhile, expectations for a soft landing, especially in the U.S. where data has remained robust, has also been lifting longer-dated yields this month.
The size and importance of the U.S. economy means U.S. economic data tends to impact bond markets globally.
European data has generally been more sluggish, and analysts argued after Thursday's ECB policy meeting that comments from President Christine Lagarde sounded like an implicit downgrade of economic projections.
Looking ahead, investors' attention is turning to economic data, including October purchasing managers' index figures from both sides of the Atlantic on Thursday and the German business climate index on Friday.
Markets expect euro area PMI data to confirm the region's sluggish macro performance and potentially justify an acceleration of the ECB's easing path.
Money markets priced an ECB deposit facility rate at about 2% in July 2025 EURESTECBM6X7=ICAP. They also fully discounted a 25 bps rate cut in December EURESTECBM1X2=ICAP and around a 25% chance of a 50 bps move.
Germany's two-year bond yield DE2YT=RR, which is sensitive to changes in interest rate expectations, rose 7.5 bps to 2.181%, breaking a four-day falling streak.
Italy's 10-year yield IT10YT=RR was 13 bps higher at 3.481%, its biggest one-day jump since April, while the gap between Italian and German 10-year yields DE10IT10=RR widened to 121 bps, having narrowed consecutively over the past seven trading sessions to 116 bps, its tightest since March.
"I believe there is some profit-taking after Italy’s outlook update from Fitch and the significant spread compression observed in previous days," UBS's Karimalis said.
On Friday, ratings agency Fitch revised its outlook on Italy to "positive" from "stable", citing recent improvements in the fiscal performance and its commitment to EU budget regulations.
Karimalis also noted that the announcement by the Italian treasury of new 7-year bond and 30-year tap via syndication was also weighing on Italian bonds.
France's 10-year yield FR10YT=RR rose 10 bps and the gap between French and German 10-year yields DE10FR10=RR was last at 72.2 bps, from around 75 bps seen before Prime Minister Michel Barnier presented the budget bill for 2025.
The French National Assembly is due to start discussing the budget later on Monday.
Reporting by Stefano Rebaudo, Samuel Indyk and Harry Robertson; Editing by Kirsten Donovan, Ed Osmond and Alison Williams
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