LONDON, Feb 12 (Reuters) - Euro zone bond yields fell on Monday after rising sharply last week, with dovish comments from a European Central Bank (ECB) official helping sooth the market.
Germany's 10-year bond yield, the benchmark for the bloc, was last down 1.5 basis points (bps) at 2.36%. Yields move inversely to prices.
The yield rose 15 bps last week after U.S. economic data came in stronger than expected and central bankers pushed back against investors' bets for rapid interest rate cuts.
Yet ECB Governing Council member and Bank of Italy chief Fabio Panetta said at a conference on Saturday that "the time for a reversal of the monetary policy stance is fast approaching", noting that inflation has fallen quickly and cutting rates late but aggressively could cause market volatility.
ECB board member Piero Cipollone said on Monday that the central bank does not need to create more slack in the euro zone economy to get inflation under control because demand is already weak.
Three bond market strategists said Panetta's comments were likely pulling yields lower, although two others said markets were naturally rebounding after a sell-off.
"The Panetta comments should be supportive, although he is well-known for his dovish attitude," said Rainer Guntermann, interest rate strategist at Commerzbank.
"It seems that there are also other factors at play, possibly like buying interest at year-to-date yield highs."
In market terms, doves are central bank officials who favour lower interest rates while hawks prefer to keep them higher.
Germany's 2-year bond yield, which is sensitive to interest rate expectations, was down 2 bps at 2.70% after climbing 18 bps last week.
"I would say it is more of a correction given the big repricing we saw since last policy meetings," said Emmanouil Karimalis, macro rates strategist at UBS.
"Inflation in the U.S. is set to decline further this week and rates might find some near-term support."
U.S. consumer price index figures are due on Tuesday and are expected to show that headline inflation slowed to 3% year-on-year in January from 3.3% in December.
Italy's 10-year bond yield was last down 5 bps at 3.91% after climbing 16 bps last week.
The closely watched gap between Italy and Germany's 10-year bond yields tightened to 154 bps.
On Monday, traders who bet on the direction of interest rates were expecting 118 bps of cuts in 2024 from the ECB, up 4 bps from Friday but down sharply from the 145 bps expected at the start of February.
Strategists at UniCredit said Italy, Germany, France, Spain, Portugal and Greece are expected to sell a combined 37 billion euros ($40 billion) of bonds this week. But they said 42 billion euros of redemptions will likely see net supply turn negative for the first time this year.
($1 = 0.9280 euros) (Reporting by Harry Robertson, additional reporting Joice Alves. Editing by Kirsten Donovan and Mark Potter)
