LONDON: Germany's benchmark 10-year bond yield held above zero percent on Monday, with the market's focus firmly on central bank meetings in Washington and Tokyo this week.
The Federal Reserve, which meets on Wednesday, could give a clear signal of an interest rate rise to come even if it meets market expectations for a pause this month.
Data showing US consumer prices rose more than anticipated in August increased the chances the Fed will raise rates later this year, pushing US Treasury yields higher on Friday.
The Bank of Japan, which concludes a two-day meeting on Wednesday, is particularly seen as a source of volatility.
It could make negative interest rates the primary focus of its monetary policy, heightening market disquiet over what any move away from quantitative easing reveals about the waning firepower of global central banks.
With three years of massive money printing failing to push up inflation, the BoJ is expected to move away from shock therapy and towards a protracted battle against deflation, according to sources familiar with its thinking.
What the BOJ says and does could have ramifications for euro zone bond markets, analysts said, since the European Central Bank is in the midst of its own QE programme and there are concerns its policy options are also narrowing.
"QE has always been a tool to push down bond yields, and now the BOJ is suggesting it could move away from this," said David Schnautz, an interest rate strategist at Commerzbank.
"This has made markets in Europe wary, because what the BOJ does could be relevant to the ECB."
The 10-year German Bund yield rose 1.1 basis points to 0.013 percent, having briefly dipped into negative territory earlier in the session.
Disappointment with a lack of action at an ECB meeting earlier this month has put upward pressure on euro zone bond yields and fuelled a perception that major central banks are running out of tools to boost growth and inflation.
Lower-rated euro zone bonds, however, saw their yields fall, with Portugal leading the way. The yield on Portugal's 10-year benchmark fell 10 bps to 3.39 percent after ratings agency S&P on Friday affirmed its rating at BB+ and maintained its stable outlook .
However, the drop in yield comes after eight sessions when it increased sharply, from 2.97 percent on Sept. 8 to a high of 3.52 percent on Friday.
"The magnitude of the rally (on Monday) is not significant compared to the widening that came before," said Antoine Bouvet, rates strategist at Mizuho. "Clearly, the uncertainty is still high in Portugal."
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