LONDON, Oct 11 (Reuters) - Euro zone long-dated bond yields dropped to two-week lows on Wednesday, extending moves from Monday's rush to safe-haven assets which, alongside policy makers suggesting rate hikes are over, halted the recent bond sell-off.
Germany's 10-year Bund yield, the benchmark for the currency bloc was down 6 basis points (bps) by 1515 GMT at 2.72%, after hitting 2.703%, its lowest since Sept. 22.
That yield, which moves inversely to the bond's price, fell 12.6 bps on Monday, as investors rushed to the safety of bonds due to the war in the Middle East.
Remarks from central bank policy makers on both sides of the Atlantic reassured investors that the European Central Bank and U.S. Federal Reserve had reached the end of their monetary tightening. The rally was also supported by many investors' view that September's heavy selling had gone too far.
ECB rate setter and Dutch central bank chief Klaas Knot said on Wednesday that "policy at this moment is in a good place," but noted that "we will remain vigilant and we stand ready to adjust interest rates even more if the disinflation process were to stall."
A day earlier, Atlanta Fed President Raphael Bostic was applauded when he told a room full of bankers in Nashville: "I actually don't think we need to increase rates anymore."
U.S. Treasuries were closed on Monday for a holiday, but the 10-year yield fell 12.7 bps on Tuesday, and a further 10 bps on Wednesday, ahead of crucial U.S. data that will set the tone for the government bond market as a whole.
"European bonds are largely following U.S. Treasuries with FOMC minutes, PPI and CPI looming," said Kenneth Broux, head of corporate research, FX and rates at Societe Generale.
"It's too soon to tell if the Treasuries move yesterday was catch up or short covering after long run up in yields."
The minutes of the September meeting of the Fed's rate setting Federal Open Market Committee are due later on Wednesday, as are U.S. factory gate price data, followed by consumer price data on Thursday.
Also in the mix in Europe was an ECB survey that showed euro zone households see inflation staying slightly above the European Central Bank's 2% target for another three years.
Policy makers keep an eye on the survey because consumer expectations can influence wage demands, spending and saving.
Italy's 10-year yield was down 8.5 bps at 4.67%, having hit a two-week low of 4.651%.
Moves at the shorter end of the yield curve were smaller. Germany's two-year yield rose 2.5 bps to 3.10%, and Italy's two-year yield was up 1.5 bps at 3.93%.
That meant yield curves became more inverted, and the spread between the German two-year and 10-year yields was -35.8, having hit -20.91 last week on the back of rising long-dated yields.
Britain's 10-year gilt yield dropped around 10 bps to 4.34%, also around a two-week low. (Reporting by Alun John; editing by Miral Fahmy, Christina Fincher and Richard Chang)
