Euro zone bond yields slip; Italy 30-year yield hits lowest since September

LONDON: Euro zone bond yields edged down in early European trading on Tuesday, heading back towards the lows reached last week when major central banks pushed back against market expectations for tighter monetary policy.

The German 10-year yield had its biggest weekly drop since 2012 last week and other euro zone government bond yields hit multiweek lows, as investors reduced their aggressive bets on future interest rate hikes following dovish moves by the Federal Reserve and the Bank of England.

While this move paused on Monday, it continued on Tuesday, with yields down 1 to 4 basis points (bps).

Italy's 10-year bond yield hit a new 25-day low of 0.858%, down 3 bps on the day, while the Italian 30-year yield hit its lowest since Sept. 23 at 1.714%.

At 0830 GMT, the German 10-year yield was down 1 bp at -0.256% and the French 10-year yield was down by a similar amount. On Monday, European Central Bank chief economist Philip Lane said that tightening monetary policy to temper the current bout of inflation in the euro zone would be counterproductive.

But top ECB supervisor Andrea Enria said on Tuesday that low ECB interest rates were now hurting bank margins.

"The central banks' message, that markets overestimated the degree to which they will have to tighten in response to the inflation flare up, has landed," wrote ING rates strategists in a note to clients.

"Helped by more subdued inflation than in other countries, the ECB has been most successful at this. This has put the EUR long-end in the driving seat, while the front-end has successfully been re-anchored, sort of."

"Today's data is unlikely to yet shift the market focus away from inflation anxiety towards growth concerns, which we expect to happen this winter," wrote Commerzbank head of rates and credit research Christoph Rieger in a note to clients.

Overnight, the yields on US 30-year treasury inflation-protected securities (TIPS) hit a record low.

Germany's ZEW economic sentiment survey for November is due at 1000 GMT and investors will also be watching US producer prices data due later in the session.