Euro zone bonds steady ahead of US data; volumes thin
German 10-year yields traded around 2.6977%, while two-year yields were little changed at 1.9706%.
Data later on Tuesday is expected to show U.S. consumer price inflation accelerated moderately in July. The rising cost of imported goods such as furniture and apparel likely pushed up a gauge of underlying inflation by the most in six months.
Traders now expect the Federal Reserve to deliver another rate cut, possibly as early as September, in stark contrast with the European Central Bank, which may not lower borrowing costs for the foreseeable future.
The premium of U.S. Treasury yields over those of 10-year Bunds has shrunk to its smallest since April this month, hovering around 158 bps, as Bunds have traded in a narrow range, while 10-year U.S. note yields dropped sharply last week, although they have retraced higher since then.
"The latest bearish bond market dynamics have taken 10-year Bund yields to the middle of the summer trading range ahead of today's data impetus," Commerzbank analysts said in a note, adding that trading volumes are thin, given the time of year.
Bund futures logged their smallest daily volume on Monday since early June, at 441,000 lots. Daily volume has exceeded the 1-million-lot mark just once so far this month, compared with three times at this point in July and three in June, according to LSEG data.
(Reporting by Amanda Cooper; Editing by Mark Heinrich)
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