LONDON: German 10-year Bund yields hit four-week lows on Tuesday as cheap oil held inflation expectations below the levels seen before the European Central Bank unveiled its last monetary policy easing package.
Oil prices are up about 50 percent from 12-year lows hit in mid-February but they have been weakening in the past week. Brent crude fell 70 cents to $39.57.
Long-term inflation expectations, as defined by five-year, five-year breakeven forwards, which show where markets expect 2026 price growth forecasts to be in 2021, were 1.43 percent, down about 25 basis points this year.
That compared with levels of around 1.50 percent after the ECB's March 10 meeting, when policymakers cut interest rates and increased the pace of asset purchases to 80 billion euros a month from 60 billion, in a bid to bring inflation back towards 2 percent from minus 0.2 percent in February.
Germany is due to release inflation figures for March on Wednesday, while the data for the whole euro zone will be published on Thursday.
German 10-year yields, the benchmark for the region's borrowing costs, fell 4 basis points to 0.14 percent, the lowest since March 1 and only slightly off this year's lows of 0.10 percent hit in February.
"Renewed pressure on inflation expectations (is) compounding the underlying risk-off sentiment," Commerzbank rate strategist Rainer Guntermann said.
Most other euro zone bond yields were 3-6 bps lower.
Part of the move was just catching up with bond yields in the United States, where markets were open on Monday.
Softer-than-forecast data on U.S. consumer spending in February supported the view of sub-par economic growth in the first quarter and the likelihood the Federal Reserve will leave benchmark interest rates alone at least into mid-year.
Fed chief Janet Yellen will speak about the economy and monetary policy on Tuesday following remarks from several Fed officials last week that further rate hikes are likely later this year.
Analysts say ECB easing and subdued near-term supply pressure should keep euro zone yields anchored even if Yellen points to more rate hikes.
"If Fed Chair Yellen sounds a more hawkish tone this evening ...then U.S. Treasuries are likely to come under slight selling pressure. But Bunds and the other euro government bonds will probably be unimpressed by this," said Alexander Aldinger, senior analyst at Bayerische Landesbank.
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