May 6 (Reuters) - Euro zone government bond yields dropped on Monday after U.S. economic data moved the needle of market bets towards a higher chance of two Federal Reserve rate cuts in 2024.
Meanwhile, the spread between Italian and German 10-year bond yields hit a 1-1/2-month low after Fitch confirmed its rating on the Italian debt.
German's 10-year bond yield, the benchmark for the euro zone, fell 1.5 basis points (bps) to 2.49%.
Italy's 10-year yield dropped 6.5 bps to 3.76%, and the gap between Italian and German 10-year yields - a gauge of the risk premium investors ask to hold bonds of the euro area's most indebted countries - was at 130 bps after hitting 122.60 bps, its lowest level since March 20.
The spread between U.S. 10-year Treasury and German Bund yields - a gauge of the expected policy path divergence between the European Central Bank and the Fed - tightened to 200 bps.
Money markets price in around 75 bps of ECB rate cuts in 2024 and 47 bps for the Fed, which implies one 25-bp cut and a 90% chance of an additional move in 2024. .
Germany's 2-year bond yield, more sensitive to ECB rate expectations, was down 4 bps at 2.89%.
(Reporting by Stefano Rebaudo, editing by Emelia Sithole-Matarise)
