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Euro currency bills are pictured at the Croatian National Bank in Zagreb, Croatia, May 21, 2019. Picture taken May 21, 2019. Image used for illustrative purpose. Antonio Bronic, Reuters
Euro zone government bond yields were on track for a weekly decline as the Israel-Iran air war entered its eighth day, with investors downplaying inflation concerns while awaiting clarity on a potential U.S. involvement in the conflict.
President Donald Trump will make a decision in the next two weeks, the White House said on Thursday, raising pressure on Tehran to come to the negotiating table.
German 10-year yields, which serve as the benchmark for the wider euro zone, fell 2.5 basis points (bps) to 2.49%, and were set to end the week 4.5 bps lower.
Money markets priced in a European Central Bank deposit facility rate at 1.77% in December, compared with 1.75% last week.
The yield on the German two-year bonds, which are more sensitive to expectations for ECB policy rates, was down 1.5 bps at 1.83%.
A drop in appetite for risk assets widened yield spreads for government bonds of highly indebted countries, such as Italy and France, against safe-haven German Bunds.
Italy’s 10-year yields dropped 4.5 bps to 3.50%. Italian yield gap against Bunds - a market gauge of the risk premium investors demand to hold Italian debt – tightened to 100 bps on Friday, but was set for its biggest weekly rise in a year.
(Reporting by Stefano Rebaudo, editing by Tomasz Janowski)