Euro zone yields test lows as focus turns to under-fire Fed

LONDON: Many euro zone government bond yields held near record lows on Tuesday before a speech by Federal Reserve chief Jerome Powell, who is coming under strong pressure from U.S. President Donald Trump to cut rates sharply.

As major central banks around the world trend towards looser monetary policy - the European Central Bank said last week it may cut rates and restart money printing - focus is turning towards the United States.

Investors will be looking for signs on how much U.S. policymakers will cut rates by in July, particularly after Trump on Monday ratcheted up his criticism of the central bank, saying it "blew it" in June.

"The market is at least pricing in a 25 basis point rate cut, and will be keeping an eye on a possible 50 basis point cut. It's not our base case, but if Powell gives a hint that this will happen, that should give bonds a further boost, especially in the short end," said Commerzbank rates strategist Rainer Guntermann. Powell is set to speak at 1700 GMT.

"In any case, subdued growth suggests that both (European and U.S.) central banks should run with an easing bias."

U.S. Treasury yields dipped, with the 10-year yield once again touching 2%, having last week dipped below that mark for the first time since November 2016.

Euro zone government bond yields held near recent lows reached after ECB chief Mario Draghi's dovish speech in Sintra last week.

German 10-year yields were at -0.311%, a shade away from the record low of -0.329% hit last Tuesday.

Dutch, Austrian and Finnish 10-year yields are also in negative territory. French 10-year yields were a shade above at 0.02% while Irish 10-year yields were at record lows.

Data showed confidence in the French industrial sector fell in June, reflecting a drop in overseas orders within the euro zone's second-biggest economy. "It adds to the notion that ECB policy easing is likely to unfold," said Guntermann.

Germany is due on Tuesday to sell five billion euros of short-dated debt, with two-year yields close to one-year lows, while Italy is set to sell 10-year and 30-year inflation-linked bonds.