Oct 15 (Reuters) - The euro area's benchmark Bund yield

dropped on Tuesday as oil prices slid, soothing fears of renewed

inflation pressures, while investors await the European Central

Bank policy meeting later this week.

Oil prices fell 3% on the back of a weaker demand outlook

and after a media report said Israel is willing not to strike

Iranian oil targets, which eased fears of a supply disruption.

Euro zone investors recently cut their bets on ECB rate

cuts, mostly tracking moves in Federal Reserve rate derivatives

after strong U.S. economic data.

They expect the ECB to cut rates by 25 bps without providing

clear guidance about the rate outlook.

Germany's 10-year bond yield was down 4 bps to

2.24%. It hit 2.299% on Friday, its highest level since early

September.

Markets are pricing in an around 90% chance of 50 bps of ECB

rate cuts by year-end..

Germany's two-year bond yield, which is more

sensitive to ECB rate expectations, fell 3 bps to 2.23%.

The gap between French and German 10-year yields

- a gauge of the risk premium investors demand to

hold France's government bonds - was last at 75 bps, roughly in

line with the levels seen before Prime Minister Michel Barnier

presented the budget bill for 2025.

Italy's 10-year government bond yield fell 4.5

bps to 3.50%, with the gap between Italian and German yields

at 126 bps.

;))