Euro zone yields dip as markets await economic data

Euro zone government bond yields fell on Monday as investors braced for a week packed with economic data and a meeting of central bankers at Jackson Hole.

Investors await business activity figures and negotiated wage growth data, which the European Central Bank will consider before its September rate decision.

Bund yields, the benchmark for the euro zone bloc, was down 2.5 basis points (bps) to 2.23%.

Euro area borrowing costs have tracked perceptions of risks in the U.S. economy, with U.S. Treasury yields easing on Friday, partly reversing the previous day's big gains as investors digested data showing a resilient U.S. consumer and inflation trending lower.

The spread between U.S. and German borrowing costs was unchanged at 163 bps. It hit a 12-month low at around 153 bps early this month.

Money markets priced in around 65 bps of ECB rate cuts in 2024, implying two 25 bps moves and an around 60% chance of a third cut.

Italian 10-year yields dropped 2.5 bps to 3.62%, with the yield gap between Italian and German bonds roughly unchanged at 138 bps.