Euro zone 10-year bond yields hit multi-week lows, inflation data in focus

Long-dated euro zone government bond yields fell to their lowest level in weeks on Tuesday, as a strong Japanese auction lifted sentiment across big bond markets and attention turned to the release of May euro zone inflation data.

Long-dated euro zone government bond yields fell to their lowest level in weeks on Tuesday, as a strong Japanese auction lifted sentiment across big bond markets and attention turned to the release of May euro zone inflation data. Italian 10-year bond yields fell to three-month lows at around 3.48%, while French yields also fell to the lowest since early March, touching 3.15%.

The so-called "flash" estimate released later on Tuesday is expected to show that headline euro area inflation eased to 2%, the European Central Bank's target, from 2.2% in April. Euro zone bond yields were lower across the board ahead of the data, with benchmark 10-year German Bund yields falling to around 2.49% -- their lowest level since May 8.

It was last down around 3 basis points on the day, in line with a fall in French and Italian bond yields. "Today's HICP (euro zone) flash data should keep 10-year Bund yields above 2.5%," said Christoph Rieger, head of rates and credit research at Commerzbank.

Analysts said positive sentiment in European debt markets, where the fall in yields implied a rise in prices, was supported by a strong government bond auction in Japan. Recent tepid auction results for longer-dated debt in the United States and Japan have raised concerns about the ability of major economies to sell their bonds against a backdrop of concern about high debt levels.

But on Tuesday 10-year Japanese government bond (JGB) yields fell after results of an auction of the securities saw the highest demand since April last year.