LONDON: Germany's benchmark 10-year bond yield held just above zero percent on Monday as the market's focus was firmly fixed 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 follows market expectations for a pause this month.
Data on Friday showing U.S. consumer prices rose more than expected in August raised the odds that the Fed will raise rates later this year, pushing U.S. Treasury yields higher.
A two-day meeting of the Bank of Japan (BOJ), which concludes on Wednesday, also has the potential to shake up global bond markets.
The BOJ could shift negative interest rates to 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, say sources familiar with its thinking.
Analysts said what the BOJ says and does could have ramifications for euro zone bond markets 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 was marginally higher at 0.005 percent, having briefly dipped into negative territory on Friday.
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.
Other euro zone bond yields were flat to a touch higher, with the exception of Portugal where bond 10-year yields pulled back from more than two-month highs hit on Friday.
News that German Chancellor Angela Merkel's CDU party suffered a rout in a Berlin state vote at the weekend had little immediate market impact.
Still, analysts said they were watching for fallout from the results since they could have implications for Germany's negotiating stance with Britain, which voted to leave the European Union in June.
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