Euro zone yields mixed after Japan election; investors await US data

Euro zone government bond yields were mixed ‍on Monday as investors were cautious at the dawn of a week ⁠packed with U.S. data, with Japan's election outcome lingering in the background.

With a brief U.S. government shutdown delaying the January employment report, the ‌jobs data ‌will be released alongside figures covering consumer prices and retail sales. The figures could ‌alter market pricing for the Federal Reserve's upcoming meetings, though the central bank will receive another round of data before its gathering from March 17 to 18.

Japanese borrowing costs were flat ​to higher along the curve after Prime ​Minister Sanae Takaichi's coalition secured a historic election victory on ‌Sunday, paving ‍the way for promised tax cuts and increased ‍military spending aimed at countering China. Germany's 10-year government ‌bond yield, the euro area's benchmark, rose 0.5 basis points (bps) to 2.85%, after hitting 2.813% on Friday, its lowest point since January 19. U.S. Treasury yields rose, with the policy-rate-sensitive 2-year up 2 bps at 3.52% in early London trade, after rebounding from a more than three-month low ‍on Friday ahead of economic data. German 2-year bond yields, which are more sensitive to expectations for policy ‍rates, rose ⁠0.5 bps ⁠to 2.07%. They reached 2.046% on Friday, their lowest point since December 3. Italy's 10-year government bond yields were down 0.5 bps at 3.47%. The gap versus Bunds was at 60 bps after tightening to 53.50 bps in mid-January, its lowest level since August 2008. Investors expect little chance of significant further tightening in euro area yield spreads without progress on financial integration.