Dec 20 (Reuters) - Euro zone government bond yields

edged down on Friday before U.S. inflation data later in the

session that could provide further clues about the Federal

Reserve's easing path.

Euro area borrowing costs spent the previous session

catching up with a jump in U.S. Treasury yields after the yield

gap with German Bunds touched the highest in over 5 years.

Germany's 10-year bond yield, the benchmark for

the euro zone bloc, was flat at 2.30% on Friday and on track for

a third straight weekly rise.

Investors are bracing for "higher for longer" U.S. interest

rates after the Fed on Wednesday indicated that further

reductions hinge on more progress in lowering stubbornly high

inflation.

Money markets priced in 38 bps of U.S. rate cuts by the end

of 2025 - which implies a 25 bp move and around a 50% chance of

a second cut - from around 50 bps right before the Fed's meeting

this week.

They also discounted a European Central Bank deposit

facility rate at 1.83% in December 2025,

from 1.80% before the Fed.

Germany's 2-year yield, more sensitive to

expectations for ECB policy rates, fell 2.5 bps to 2.03%.

The spread between U.S. and German 10-year yields

was at 124 bps after hitting 127.5 bps early on

Thursday, its highest since 2019.

French politics remained in the spotlight, with investors

trying to assess whether a new government can tackle France's

fiscal problems.

The yield spread between French government bonds and

safe-haven Bunds - a gauge of the risk premium

investors demand to hold French debt - was at 80.50 bps. It

recently hit 90 bps, its highest in over 12 years.

The French Senate on Wednesday approved a special law

designed to prevent any interruption of public services, by

rolling over 2024 budget rules.