LONDON, July 15 (Reuters) - Euro zone government bond yields were a fraction lower on Monday, as investors tried to digest the impact of the attempted assassination of U.S. presidential candidate Donald Trump and awaited a European Central Bank meeting.
The German 10-year bond yield, the benchmark for the wider euro zone, rose at the open, but was last down a whisker at 2.49%, moving broadly in line with its U.S. peer.
The U.S. benchmark 10 year Treasury yield initially rose as much as 5 basis points and was last up 3 bps at 4.22%, as investors wagered the shooting attack increased Trump's chances of victory and the likelihood of policies that would drive up government debt and stoke inflation.
"While a rise in long-end yields makes intuitive sense as part of a 'Trump trade', the fact that the price action on the part of the market more broadly fails to resonate with this theme raises a question mark over the sustainability of the bearish tone in fixed income," said analysts at Rabobank in a note, who said the moves were more "incoherent".
Bond yields move inversely to prices.
"The notion that a Trump presidency is bad for bonds on the back of high spending overlooks the fact that it also promises to stoke geopolitical tensions which would tend to point to higher demand," they said.
They added the assassination attempt "bolsters Trump’s chances but also speaks to the potential for violence and unrest in a deeply polarised society (the intensification of which would stand to boost safe havens everywhere)".
ECB MEETING
There were a few developments and pieces of economic data closer to home for euro zone bond investors to digest, but they had little market impact.
Euro zone industrial production decreased by 0.6% in May from the previous month, while dropping 2.9% year-on-year, data from the European Union statistics agency Eurostat showed on Monday.
The head of France's national audit office said on Monday the country had no more financial leeway in its budget and needed to urgently focus on reducing its debt.
French government bonds were moving in line with German, with its 10 year yield down nearly 1 basis point at 3.15%, leaving the spread between the two steady at 65 bps.
It has been closely watched since moving above 80 basis points in the run up to the country's parliamentary election, but has since been narrowing.
The main event of the week for European bonds is Thursday's ECB meeting.
The central bank cut rates in June for the for the first time five years, though is not expected to change policy this week. While investors are watching for clues about whether another cut could come in September, President Christine Lagarde is likely to avoid statements about future moves.
The derivatives market currently shows traders expect at least one more rate cut from the ECB, with a reasonable chance of another before year-end.
Italy's 10-year yield dipped 2.5 bps to 3.77%, leaving the premium over German Bund yields 3 bps narrower at 128 bps. (Reporting by Amanda Cooper and Alun John; Editing by Bernadette Baum, Angus MacSwan and Alison Williams)
