LONDON, Sept 28 (Reuters) - German government bond yields dropped sharply on Friday as worries over an expansionary Italian budget and an unexpected dip in underlying euro zone inflation fuelled demand for the debt of bloc’s largest economy.
The yield on 10-year German government bonds dropped 6 basis points on the day to 0.47 percent by 0930 GMT, extending a fall that began early in the session. Demand was initally fuelled by overnight news that Italy’s government was targeting a budget deficit at 2.4 percent of gross domestic product for the next three years.
Short-dated two-year German yields were lower 3 bps at minus 0.54 percent.
Later on Friday, data showed euro zone inflation rose this month but measures of underlying price pressures dipped unexpectedly, likely fuelling concern at European Central Bank as it prepares to curb stimulus. (Reporting by Abhinav Ramnarayan; Editing by Virginia Furness)