The risk premium investors demand to hold French debt rather than German Bunds steadied close to its highest level in over 12 years on Tuesday, with the French government all but certain to collapse later this week.

Barring a last-minute surprise, Prime Minister Michel Barnier's fragile coalition will be the first French government to be forced out by a no-confidence vote since 1962, in a move that would stall plans to curb a burgeoning budget deficit. The vote is expected on Wednesday.

German 10-year government bond yields were higher after an eight-day falling streak driven by a bleak economic outlook, while the political crisis in France sent investors rushing into safe-haven Bunds. Bond prices move inversely with yields.

"A likely scenario would be Barnier continuing as a caretaker prime minister and the 2024 budget being rolled over," said Paul Donovan, chief economist at UBS Global Wealth Management (GWM).

"France is not Greece circa 2008; it is a wealthy country that can fund its deficit," he added. "France is not the U.S. circa 2024; over the medium term, political structures make budget control easier."

The gap between French and German yields – a gauge of the premium investors demand to hold France's debt – tightened 3 basis points to 83.80 bps, after hitting 90 bps on Monday, its widest since 2012.

"Implications for other euro area government bonds look limited for now as the market continues to trade this (the political crisis in France) as an idiosyncratic French issue," said Aman Bansal, rate strategist at Citi.

"This has driven a decline in the sensitivity of BTP-Bund spread to OAT spread," he added.

Italy's 10-year government bond yields – the benchmark for the euro area periphery – fell one bp to 3.25%. The BTP yield spread tightened to 118.5 bps.

Germany's 10-year yield, the benchmark for the euro area, rose 3 bps to 2.06%.

Markets await U.S. Job Openings and Labor Turnover Survey (JOLTS) data, recording externally advertised job vacancies.

"Vacancies may be in focus if US President-elect Trump pursues deportations that create labour market bottlenecks," UBS GWM's Donovan said.

Markets are pricing in a European Central Bank deposit facility rate at around 1.85% in July, versus 3.25% currently. They are fully discounting a 25 bps rate cut next month, and around a 15% chance of a 50 bps move.

Germany's two-year yields - more sensitive to ECB policy rate expectations - were up 5 bps at 1.95%, after hitting a fresh 25-month low early in the session at 1.891%.

(Reporting by Stefano Rebaudo. Editing by Mark Potter)