Jan 5 (Reuters) - German Bund yield was on track to record its most significant weekly rise since mid-October after robust economic data on both sides of the Atlantic led investors to cut their bets on 2024 rate cuts to 150 basis points.
Investors await job data from the U.S. later in the session, which could affect expectations for the Federal Reserve's policy path.
Their focus is also on the flash estimate for the bloc's inflation data due at 1000 GMT, with analysts' forecasts at around 2.8-2.9% after several euro area countries -- including Germany and France -- have published their figures.
"All else being equal, (inflation) data suggest euro area headline harmonized index of consumer prices (HICP) is likely to print in line with our below-consensus forecast of 2.8% year-on-year," said Andrzej Szczepaniak, economist at Nomura.
"Euro area core HICP inflation may eventually print marginally higher," he added, mentioning Spanish data previously released, which were on the firmer side.
December 2024 European Central Bank euro short-term rate (ESTR) forwards rose to 2.4% late on Thursday -- implying cuts in the ECB deposit facility rate for 150 bps this year -- from 2.22% early in the session. They were last at 2.41%. The depo rate is at 4%, 10 bps above the ESTR.
"We still think ECB pricing (of future rate cuts) has overshot," Citi analysts said in a research note.
"The rally has been Fed-led, and the ECB meeting in December guides towards a cut mid-2024 at the earliest," they added.
Germany's 10-year government bond yield, the benchmark for the euro area, rose 3 bps to 2.13% after briefly hitting a fresh 3-week high at 2.145%. It was on track to end the week 11.5 bps higher.
German retail sales fell more than expected in November, decreasing by 2.5% compared with the previous month.
U.S. Treasury yields were up in early London trade, with the benchmark 10-year yield hovering around 4%, after rising the day before as labour market data tempered expectations of an interest rate cut by the Fed in March.
Investors focused on the Labor Department's employment report for December after the weekly figures were released on Thursday. Nonfarm payrolls likely increased by 170,000 jobs in December, according to a Reuters survey of economists, after rising by 199,000 jobs in November.
Italy's 10-year government bond yield, the benchmark for the euro area periphery, rose 3.5 bps to 3.83%, with the gap between Italian and German yields at 167.5 bps after dropping below 160 bps last week.
Expectations for aggressive policy rate cuts in 2024, a slower-than-expected ECB plan to reduce Pandemic Emergency Purchase Programme (PEPP) reinvestment, and a European Union stability pact allowing more time to cut public debt supported demand in Italian government bonds late last year.
(Reporting by Stefano Rebaudo, editing by Ros Russell) ;))
