Euro zone bond yields drift lower in pre-holiday lull

• Euro zone periphery govt bond yields
• Bond yields off 6-month highs
• ECB's Knot says rates could stay low for years

LONDON: Euro zone bond yields drifted lower on Monday as investors plumped for the safety of safe-haven government debt in thin pre-holiday trade.

French, German and Dutch 10-year bond yields last week hit their highest levels in around six months after Sweden's central bank ended five years of negative interest rates - reinforcing a sense in markets that major central banks may be done with pushing borrowing costs further below zero.

But they dipped 1-2 basis points on Monday, reflecting demand for safe-haven sovereign debt ahead of Christmas.

Germany's benchmark 10-year Bund was just 1 bps lower at -0.26%, about 5 bps below last week's high.

Still, it has risen almost 50 bps from record lows set in early September -- reflecting an easing of worries over Brexit and a bitter US/China trade conflict and some signs that the worst may be over for the euro zone economy.

"There is a feeling that the bad news that pushed yields down to extreme levels has trickled away, which means other factors such as better data could start to come into play more," said Andy Cossor, rates strategist at DZ Bank.

China said on Monday it would lower tariffs on products ranging from frozen pork and avocado to some types of semiconductors next year as it looks to boost imports amid a slowing economy and the trade war with the United States.

The news had little impact on markets, which have already adjusted to a thawing in US/China trade relations.

Elsewhere, European Central Bank Governing Council member Klaas Knot said interest rates in the euro zone could remain historically low for years, but the ECB's ultra-loose monetary policy risks becoming counterproductive.

"More strikingly though he also noted that 'from a macro-economic perspective that would be undesirable,' said Chris Bailey, European Strategist at Raymond James.

"Yes, learn from the experience of Japan. If the ECB does change a little in 2020 then expect bond yields to be the area to struggle."

In southern Europe, 10-year bond yields were steady to a touch lower , showing little reaction to a sale of Italian bonds.