LONDON: Most euro zone bond yields fell on Wednesday after the Bank of Japan set the tone for further easing ahead by warning of rising risks to its economy, and ahead of Thursday's European Central Bank meeting.
Central bank policy was in focus for investors after the Bank of Japan retained its ultra-easy monetary settings, and pushed backed expectations that it would exit a vast stimulus programme begun in 2013.
It cut its inflation forecasts and warned of rising risks to the economy from faltering global demand, a new setback for years of efforts to foster durable growth.
Growth concerns are feeding into a strong bid for euro zone bonds, both in the secondary and primary markets, as evidenced by the 50 billion euros of orders placed for Spain's 10-year syndication on Wednesday.
"There is a natural demand from institutions and pension funds and you have an environment where you are worried about growth," said Justin Onuekwusi a fund manager Legal and General Investment Management. "What you see is that during every single growth scare bonds do provide protection relative to equities."
The yield on Spain's 10-year government bond extended falls to a new six month low, and was last down 1.5 basis points to 1.329 percent.
Most other euro zone bond yields were around one basis point lower.
Investors will also be looking for direction on future monetary policy, and comment on the euro zone's growth outlook, when the European Central Bank meets on Thursday.
Daniel Lenz, rates strategist at DZ Bank, said the market was being influenced by political risk from the partial US government shutdown and by worries about a "no-deal" Brexit.
"Even more important is whether the world economy suffers a hard or a soft landing, and how much growth rates come down," he added. "We had International Monetary Fund numbers telling us there would be a cooling down of the economy, though not a severe one."
The yield on Germany's 10-year government bond, the benchmark for the region, slipped marginally in early trade to around 0.235 percent, putting it on track for its third straight day of falls this week.
"The ECB will likely acknowledge rising downside risks to the outlook for growth without shifting its policy stance or rate guidance significantly," Florian Hense, economist at Berenberg Bank, wrote in a note on Wednesday.
Money markets are now pricing in a less than 40 percent chance of a 10 basis point rate hike in 2019.
They are also hoping for guidance on the nature of a successor to the ECB's targeted longer-term refinancing operations (TLTRO).
Euro zone consumer confidence figures due to be published later on Wednesday are likely to fall, according to a Reuters poll.
Germany sold 3.199 billion euros of five year bonds at auction, the German Finance Agency said.
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