USGerman bond yield gap at its widest since July
Goldman reckons spread could hit 200 bps
ECB tipped to deliver third rate cut on Thursday

LONDON, Oct 15 Reuters A rapid divergence between euro zone and U.S. government bond markets is expected to continue, as an increasingly lacklustre European economy adds to the pressure on the European Central Bank to quickly cut interest rates.

The closelywatched gap between U.S. and German 10year bond yields has risen to its widest since July at around 183 basis points bps, as U.S. yields have climbed in recent weeks while the German ones have ticked up only slightly. Yields move inversely to prices.

We think these market dynamics have further to run, said Simon Blundell, cohead of European fundamental fixed income at 11.5 trillion asset manager BlackRock, who favours European over U.S. bonds.

While September39;s sharp acceleration in U.S. jobs growth highlights the strength of the U.S. economy, euro area business activity contracted unexpectedly last month.

Traders now expect the U.S. Federal Reserve to slow down after a 50basis point rate cut in September, but the ECB is this week tipped to deliver its third rate cut since June.

Goldman Sachs said the U.S.German bond yield gap is likely to rise to 200 bps, a level last seen earlier this year.

We continue to expect European rates to outperform the U.S, with data weaker and a central bank less willing to frontload, the bank39;s analysts said in a note.

The widening…