LONDON, April 26 (Reuters) - Euro zone bond yields dropped on Friday ahead of ever-important U.S. inflation data, but were still set for a second week of increases in a row as traders continued to grapple with when, and how, quickly global central banks will start cutting rates.
German 10-year bond yield, the benchmark for the euro zone bloc, fell 1.9 basis points to 2.61%, but is set for a weekly rise of 10 bps.
The euro zone benchmark touched a five-month high of 2.32% early in the session.
The latest reading of U.S. core personal consumption expenditures, the Federal Reserve's preferred inflation measure, is due at 1230 GMT, and could cause markets to further push back their bets on when the U.S. central bank will start cutting interest rates.
That will have knock-on effects for other policy makers including the European Central Bank, and rate markets around the world.
Italy's 10-year yield was lower by 4.3 bps at 3.94%, and the gap between Italian and German Bunds narrowed 2.2 basis points to 132 bps.
Germany's two-year bond yield, which is more sensitive to European Central Bank rate expectations, was little changed at 3%. (Reporting by Alun John; Editing by Amanda Cooper)
