LONDON, June 5 (Reuters) - Germany's 10-year government bond yield was steady on Wednesday after its sharpest two-day drop since March following weak U.S. and European data, with focus set to shift to the European Central Bank's policy announcement on Thursday.
The ECB is widely expected to lower its deposit rate from a record high of 4%, but there remains uncertainty about the future path for rates.
Money market traders are pricing around 63 basis points (bps) of cuts this year, implying two quarter-point moves and around a 50% chance of a third cut.
"We're all sitting and waiting for tomorrow. We think the ECB will do the 25 (basis point cut) and then say we have to wait and see how data evolves," said Jens Peter Sørensen, director, fixed income research at Danske Bank.
"If they do that then I think the market reaction should be fairly benign."
Some policymakers have tried to take a move at the following meeting in July off the table, while others, including French rate-setter Francois Villeroy de Galhau, appeared more open to a second straight move.
Much will depend on how inflation and wage data unfold over the coming months.
On Wednesday, data showed euro zone producer prices fell 1% in April.
Germany's 10-year bond yield, the benchmark for the euro zone bloc, was up less than 1 bp at 2.549%. It fell 11 bps in the prior two days, its biggest two-day fall since March.
Bond yields move inversely with prices.
Germany's two-year bond yield, which is more sensitive to European Central Bank rate expectations, was also up 1 bp at 3.008%.
Yields across the globe have broadly fallen this week on the back of soft labor market data from the U.S. and disappointing manufacturing figures from both the U.S. and euro area.
Data on Tuesday showed a larger-than-expected drop in U.S. job openings in April, pushing the number of available jobs per job-seeker to its lowest in nearly three years.
"JOLTS data adds to a multitude of indicators that suggest that some slowdown maybe coming in the US labor market," said Mohit Kumar, chief economist Europe at Jefferies.
The benchmark U.S. Treasury yield was up 1.5 bps at 4.35% on Wednesday, but still down over 20 bps in the last four trading days.
The spread between U.S. 10-year Treasuries and German bunds was at 180 bps, close to its tightest level since March.
Italy's 10-year yield was higher by 1 bp at 3.88%, meaning the yield gap between Italian and German bonds , a measure of risk premium investors seek to hold Italian paper, stood at 132 bps. (Reporting by Samuel Indyk; Editing by Andrew Heavens and Sriraj Kalluvila)
