Euro zone government bond yields rose on Friday after stronger-than-expected Purchasing Managers’ Index readings from the bloc prompted investors to slightly scale back bets on a European Central Bank rate cut next year.

Euro zone business activity unexpectedly grew at a faster pace in October. French business activity declined faster than expected in October, while Germany's private sector recorded its strongest growth in nearly two-and-a-half years.

The U.S. Bureau of Labor Statistics is set to release its inflation report later on Friday.

Germany’s 10-year Bund yields were up 3.5 basis points (bps) at 2.61% after hitting 2.624%, their highest since October 14.

"October’s flash PMIs suggest that the euro-zone economy may have picked up a bit at the start of the fourth quarter, although we suspect that growth will probably remain low at around 0.2% quarter on quarter," said Adrian Prettejohn, Europe economist at Capital Economics.

Borrowing costs on both sides of the Atlantic rose on Thursday after U.S. sanctions on Russia prompted a jump in oil prices, which stoked inflation concerns.

Benchmark U.S. Treasury 10-year yields were up 2.5 bps at 4.01% after rising 3.5 bps a day earlier.

Money markets priced in a 50% chance of a 25-basis-point ECB rate cut by July from 60% before the data. The key rate is seen at around 1.85% in December 2026 from the current 2%.

The yield gap between safe-haven Bunds and 10-year French government bonds — a market gauge of the risk premium investors demand to hold French debt — widened to 80.50, while analysts expect a downgrade to single-A in Friday’s review by Moody's.

French debt risk premium hit 87.96 bps earlier this month, the highest level since January 13, on concerns about the French fiscal outlook. It then fell to below 75 bps after Prime Minister Sebastien Lecornu survived two no-confidence votes in parliament.

However, uncertainty remained elevated, with the Socialists threatening to bring down the government by Monday unless their budget demands are met.

(Reporting by Stefano Rebaudo; Editing by Thomas Derpinghaus)