(Updates at 1030 GMT)

By Alun John

LONDON, June 25 (Reuters) - Germany's 10-year yield

dropped on Tuesday and the now closely watched spread between

German and French bonds tightened a fraction as traders awaited

economic and political developments later in the week.

The major scheduled macro economic event for government

bonds globally is U.S. personal consumption expenditures

inflation on Friday, the Fed's preferred measure. Preliminary

inflation data from several European markets for June is also

due that day.

Those releases will help shape market expectations of

the date of the U.S. Federal Reserve's first interest rate cut

this cycle and the European Central Bank's next move after it

eased policy earlier this month.

Investors are also watching the first round of voting in

the French parliamentary election on Sunday, as well as

Thursday's U.S. presidential election debate.

The German 10-year bond yield on Tuesday fell 3

basis points to 2.39% having traded in a tight range for the

past week.

It dropped sharply earlier in the month as the euro zone

benchmark bond benefited from a flight to safety after French

president Emmanuel Macron called a snap parliamentary election.

France's 10 year bond yield was last 4 bps lower at

3.10% and the spread between France and Germany's 10 year yields

was 71 bps, down a fraction on the day, and down from above 80

bps earlier in the month.

Based on opinion polls, the far right National Rally

(RN) is likely to be the largest party after the election, but

fall short of an overall majority, with the left-wing New

Popular Front (NFP) coalition second.

"Near-term political uncertainty in France has

increased, resulting in a positive political risk premium in

OATs (French government bonds). We expect this to remain until

said uncertainty has been resolved," said analysts at Nomura in

Tuesday note.

"For this, however, we believe either a RN majority or

an impasse with a centrist technocrat appointed as PM is

necessary. We expect uncertainty will remain elevated should the

left-wing coalition NFP win an outright majority and be asked to

form the government."

Fears the RN would adopt a fiscally profligate set of

policies spooked markets initially, though Nomura said remarks

from RN officials that they would respect the EU's fiscal rules

and not implement dramatic fiscal expansion meant they now

thought "financial markets would react favourably to an outright

RN majority".

Elsewhere, Italy's 10-year yield was lower by 2

bps at 3.91%, and the gap between Italian and German bund yields

widened a touch to 151 bps.