Oct 21 (Reuters) - Euro zone government bond yields

edged higher on Monday after dropping late last week as markets

increased their bets on the European Central Bank monetary

easing path.

Investors are looking ahead to key economic data, including

euro area PMI on Thursday and the German business climate index

on Friday.

Analysts argued right after the ECB policy meeting on

Thursday that comments from ECB President Christine Lagarde

sounded like an implicit downgrade of economic projections.

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

sensitive to ECB rate expectations, was flat at 2.10%.

Money markets priced an ECB deposit facility rate at just

below 2% in June 2025. They also fully

discounted a 25 bps rate cut in December

and around a 30% chance of a 50 bps move, from just fully

pricing a 25 bps cut on Thursday before the ECB meeting.

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

the euro zone bloc, rose 0.5 bps to 2.19%.

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 71.50 bps, from

around 75 bps seen before Prime Minister Michel Barnier

presented the budget bill for 2025.

The French National Assembly will start discussing the

budget on Monday.

Italy's 10-year yield was one bp higher at

3.37%, and the gap between Italian and German yields

held steady at 116.50 bps, after hitting 116, its

lowest level since March.