LONDON: Euro zone government bond yields flittered near multi-week lows on Thursday as investors weighed up the outlook for monetary policy in two of the world's largest economic blocs.
Minutes from the US central bank's last meeting released late Wednesday showed most policymakers favour trimming its $4.5 trillion balance sheet later this year.
While this would be a tightening move, some analysts said it may affect other policy levers and slow the pace of interest rate hikes, confusing the market reaction.
Suggestions from the US House of Representatives Speaker Paul Ryan that fiscal stimulus via tax reform could be some way off was also seen capping moves in U.S Treasury yields and, in turn, the euro zone's flagship German yield, which has halved over the past three weeks.
Minutes from the European Central Bank's last meeting, due to be released on Thursday, also seeded caution in bond markets as investors looked for clarity on small tweaks to the ECB's policy message.
A source close to the ECB discussions told Reuters last week that changes to its forward guidance had been over-interpreted by markets which had immediately begun to price in the prospect of rate increases at the end of the year.
"The FOMC's focus on ending its re-investments and downbeat comments on a swift US tax stimulus weighed on risk sentiment," Commerzbank analyst Rainer Guntermann said.
"Today will provide more colour on the ECB discussion. The ECB accounts of the latest Council meeting could help to understand whether the market really 'over-interpreted'."
Germany's 10-year bond yield - the bloc's benchmark - edged up 1 basis point to 0.26 percent, giving up an earlier fall but holding near a one-month low of 0.24 percent breached Tuesday . It remains far from the 14-month high of 0.51 percent reached in mid-March.
Most other euro zone yields were flat to slightly higher on the day, having been broadly lower in early trading.
The ECB's president and chief economist said Thursday that the central bank will stick to its policy plan including bond buying and record-low rates for some time to come as it is not yet convinced the euro zone economy is back to rude health.
But the head of Germany's Bundesbank said it is legitimate to start discussing when and how the European Central Bank will wind down its aggressive stimulus policy.
Money market pricing suggests investors see less than a 20 percent chance the ECB will raise rates at the end of this year, down from as much as 70 percent at the end of last month, and around a 40 percent chance of a hike in March 2018.
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