*

Investors await policy meetings from Fed, BoJ, BoE

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French bonds roughly in line with peers after lagging

earlier

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Some analysts still see an ECB cut as likely

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A more political Fed could bring a fairly low bar for cuts

to

2-2.5%, says Citi

By Stefano Rebaudo and Amanda Cooper

Sept 15 (Reuters) - Euro zone government bonds slipped

on Monday ahead of a week packed with macro risk events,

including rate decisions from the Federal Reserve, Bank of

England and Bank of Japan, all of which could influence investor

appetite for euro zone debt.

French bonds traded roughly in line with their German peers

after lagging in early trade as credit ratings agency Fitch cut

France's long-term rating on Friday.

Borrowing costs rose on Friday after the ECB maintained an

upbeat view on growth and inflation.

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

euro zone bloc, fell 2 basis points (bps) to 2.69%.

Markets priced in a 45% chance of a 25 bps ECB cut by June

2026 to 1.75%, and a depo rate at around

1.9% in December 2026.

Some analysts remain cautious about market pricing for the

ECB rate outlook, warning that expectations may be running ahead

of fundamentals.

"Lagarde sounded a bit hawkish last week, backing a

higher-for-longer rate scenario," said Gabriele Foa, portfolio

manager at Algebris Investments.

"Still, we expect possible ECB easing next year, especially

after the Fed starts cutting rates and markets begin to feel the

drag from U.S. tariffs and a strong euro."

Germany's 2-year yields, more sensitive to

expectations for European Central Bank policy rates, rose 1.5

bps to 2.00%.

The focus is now shifting to the Fed policy meeting outcome

due on Wednesday.

"A more political Fed in 2026, perhaps being comfortable

with inflation running slightly warmer than 2%, could bring a

fairly low bar for cuts to 2-2.5% in most positive economic

states of the world," said Jason Williams strategist at Citi.

Markets are currently fully pricing a 25 bps Fed rate cut

this week and around 140 bps by end 2026, from the current level

of between 4.25% and 4.50%.

France's OAT yields fell 2 bps to 3.49%.

The yield gap between safe-haven Bunds and 10-year French

government bonds - a market gauge of the risk

premium investors demand to hold French debt - was at 79 bps.

Some analysts flagged that OATs are already trading markedly

cheaper than double-A or single-A rated peers.

The premium investors demand to own French, rather than

German bonds, traded above 80 bps on Monday, having risen from

around 65 bps in the last month, as a vulnerable French

government headed towards last week's confidence vote.

"If France falls below AA- from two or more rating agencies,

we could see some forced selling from institutional accounts,"

said Jefferies strategist Mohit Kumar.

President Emmanuel Macron last week named loyalist Sebastien

Lecornu as France's fifth prime minister in under two years,

after predecessor Francois Bayrou was toppled in the

parliamentary confidence vote over the government's hugely

unpopular budget.