LONDON: German 10-year yields fell back below 1 percent on Tuesday ahead of a German survey expected to show investor confidence in the region's biggest economist remained downbeat, underlining the impact of ECB's ultra-easy policy stance.
Adding pressure on the European Central Bank, the OECD on Monday revised its global growth forecasts for major developed economies downward and urged more aggressive ECB stimulus to ward off deflation in the currency bloc.
Price moves were, however, expected to be modest on investor caution before the US Federal Reserve's policy decision on Wednesday and Scotland's independence referendum on Thursday, which may have ripple effects on similar separatists movements elsewhere in Europe, particularly Spain.
Against that backdrop, the market impact of the German ZEW indicator due at 0900 GMT was likely to be fleeting.
"The ZEW has been quite a disappointment in the past releases. The consensus is seeing a further downgrading of the current conditions and expectations component," said Christian Lenk, a strategist at DZ Bank.
"It's a sentiment indicator by financial analysts so it's usually quite fickle. I doubt that it will have a major market impact as there are other major events looming in the near-term."
German 10-year yields, the benchmark for euro zone borrowing costs, were 2.4 basis points down at 0.996 percent. They had risen back above 1 percent over the past week as speculation that the Fed could raise interest rates sooner and faster than previously expected rattled financial markets across the globe.
Yields on other top-rated euro zone bonds were 2-3 bps lower in modest volumes as investors kept a wary eye on the start of the Fed's Open Market Committee policy meeting later on Tuesday.
Investors will be scanning the outcome on Wednesday for clues on the timing of the first US rate hike in more than eight years.
They have said they do not expect to raise rates until 2015, but recently strong US economic data has led Fed officials to acknowledge they may need to act sooner than they thought just a few months ago.
Peripheral euro zone bonds underperformed their lower-yielding peers, with Spanish 10-year yields 3 bps higher at 2.38 percent with investors remaining skittish ahead of the Scottish vote that some fear could embolden separatists in wealthy Catalonia.
"I expect Spanish bonds will remain under pressure until after the Scottish referendum.
The FOMC is also adding to the uncertainty in the market," a trader said.
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