UPDATE 1-German bond yields down, investors brace for risk-packed week

German benchmark bond yields were lower on Monday, shrugging off unexpectedly strong trade data from Germany, before a week that includes U.S. Federal Reserve and European Central Bank meetings and a UK election. Yields on German 10-year yields held around -0.30%, down from around 0.24% at the end of 2018, as major central banks resumed policy stimulus this year.

Caution before this week's central bank meetings and trade war uncertainty lifted sentiment towards safe-haven bonds at the start of the week. Ten-year bond yields in higher-rated euro zone states were down 1 to 2 basis points. Fund managers expect yields in Europe to edge lower next year. Mark Holman, a partner at TwentyFour Asset Management, expects a 10 bps rate cut from the ECB next year, pushing German 10-year yields to -0.40% amid reluctance by eurozone banks to pass on negative rates to end-users.

"We do think this reluctance will be questioned more and more the longer rates are below zero, but until negative rates are widely passed on, the ECB's effectiveness to deal with future downturns is materially weakened," Holman said. Markets took some unexpectedly strong German trade data in stride. Disappointing data last week, including weak industrial production, painted a mixed picture of the economy.

"Markets are broadly in a wait-and-watch mode before the events this week," said Daniel Lenz, a rates strategist at DZ Bank. New European Central Bank boss Christine Lagarde holds her first policy meeting on Thursday. She is expected to signal a commitment to the ECB's recent stimulus package, with no major policy changes.

The Fed is also expected to hold fire on Wednesday. Futures markets foresee no change in policy interest rates. Germany's exports rose unexpectedly in October, a morale boost for Europe's largest economy. It has been on the brink of recession in recent quarters, but industrial output and PMI survey data last week showed an economy trying to gain traction. and

Elsewhere, U.S. Treasury yields shed some of Friday's rise after data showed job growth increased by the most in 10 months in November. Benchmark U.S. Treasury yields dipped 2 basis points to around 1.82% after rising to 1.8640% on Friday, its highest level in nearly a month. Top White House economic adviser Larry Kudlow said on Friday that a Dec. 15 deadline is still in place to impose a new round of U.S. tariffs on Chinese consumer goods, but President Donald Trump likes where trade talks with China are going.