MILAN: Euro zone bond yields nudged down on Tuesday, with markets in a wait-and-see mood ahead of a European Central Bank policy meeting and US inflation data, both due on Thursday.
Recent comments suggested the ECB would continue buying bonds at the current pace and will not start discussions about a future bund-buying tapering at its meeting on June 10.
"The consensus ahead of the ECB meeting has pretty much settled on the view that the Governing Council will keep the faster pace of asset purchases via the pandemic emergency purchase programme for another quarter," ING analysts said.
But they also acknowledged that "the bar for a dovish surprise has been set high".
Thursday's US May consumer price index could prove to be one of the most significant inflation prints before the Federal Reserve's June 15-16 meeting.
US Treasury yields eased in the London session as traders awaited the results of upcoming government bond auctions, while a Federal Reserve reverse repurchase facility took in a record amount of money.
Germany's 10-year Bund yield was last down 0.5 basis points at -0.20, keeping near roughly one-month lows hit after Friday's US jobs data.
According to Annalisa Piazza, fixed-income research analyst at MFS Asset Management, "some 'dovishness' in the next ECB meeting seems to be already in the prices".
She expected the ECB "to sit and wait until the first bulk of EU issuances are absorbed by investors, (and) re-assess risks around the pandemic over the summer".
Most analysts expect euro zone borrowing costs to remain range-bound until Thursday.
"Bunds are struggling to maintain their post-payrolls ground below -0.2% in 10-year yields, with little fundamental news to trade on," Commerzbank analysts told clients.
We prefer "tactical Bund shorts below -0.2%", they added.
Italy's Treasury received 60 billion euros of demand for 10-year bond syndication, to price at 6 basis points over outstanding BTP due in August 2013.
According to ING analysts, a deal on 10-year Italian bonds is a test for euro zone rates ahead of the ECB meeting.
Italy's 10-year government bond yields were flat at 0.918%.
Austria sold 600 million euros of 2031 bonds at a yield of -0.003%. Germany sold 7-year Bunds with bid cover at 1.2 and an average yield at -0.37%.
The Netherlands will also be in the primary market with auctions.
According to analysts, data on Germany's ZEW economic sentiment failed to have a meaningful impact on European government bond yields, as expectations of a strong recovery are already priced in.