Jan 16 (Reuters) - Euro zone government bond yields edged higher on Tuesday after European Central Bank (ECB) policymakers expressed a wide array of views on inflation and interest rates.
ECB policymakers maintained a cloud of uncertainty over the timing of rate moves, even as investors bet on early and aggressive cuts.
Francois Villeroy de Galhau said the ECB's next move would be a rate cut in 2024, barring surprises. He added the central bank was prepared to be patient.
Analysts said the French central bank governor was pragmatic and tended to provide reliable guidance on policy.
Money markets stood their ground, still discounting around 150 basis points (bps) of ECB rate cuts by year-end , while fully pricing a first move in April .
"A message coming out from Davos is that ECB policymakers want to be sure that inflation pressures are no longer in the pipeline before cutting rates," said Andrzej Szczepaniak, European economist at Nomura, referring to remarks from the World Economic Forum meeting in Switzerland. Szczepaniak sees a first ECB move in June.
"When that happens, they could cut rates more aggressively than people think," he added, arguing that to move from the current restrictive policy level to neutral, the ECB would need more than 100 bps of cuts.
Germany's 10-year government bond yield, the euro area's benchmark, was up one bp at 2.21%.
Euro zone consumers have slashed their inflation expectations, an ECB survey showed on Tuesday, in comforting news for the ECB's efforts to contain prices.
The euro 5-year by 5-year forward inflation linked swap - a key market gauge of the bloc's long-term inflation expectations - was at 2.27%, not far from the lowest levels seen in 2024 of around 2.24%.
ECB officials seen as doves, including Philip Lane and Constantinos Herodotou, flagged on Monday that current market expectations for rate cuts were too optimistic.
Rabobank analysts noted a high sensitivity to ECB remarks, "given the degree of rate cuts that have been priced".
They argued that while the view of ECB hawks Joachim Nagel and Robert Holzmann "was not particularly surprising," there was "a decent level of pushback from Herodotou," who is one of the more dovish policymakers.
Market participants label as hawks central bank officials who are inclined to advocate a tight monetary policy to control inflation, while doves are more focused on economic growth and the labour market.
Italian government bonds slightly underperformed their peers, with the 10-year yield up 3 bps to 3.81%, and the gap between Italian and German 10-year yields widening to 159 bps. Bond prices move inversely to yields. (Reporting by Stefano Rebaudo, Editing by Bernadette Baum and Mark Potter) ;))
