Sept 18 (Reuters) - Euro zone bond yields rose on Monday, with investors awaiting the outcome of the Federal Reserve policy meeting on Wednesday amid hawkish remarks by European Central Bank officials.
ECB policy hawks Bostjan Vasle and Robert Holzmann said another rate increase could not be ruled out.
The Fed will leave its benchmark interest rate unchanged and probably wait until the April-June period of 2024 or later before cutting it, according to economists in a Reuters poll.
However, according to academic economists polled by the Financial Times, the Fed will defy investors' expectations and raise rates at least another quarter-point.
Germany's 10-year government bond yield, the benchmark for the euro area, rose 2 basis points (bps) to 2.69%.
This week will be packed with central bank policy meetings, including the Bank of England (BoE), the Riksbank, the Norges Bank and the Swiss National Bank (SNB), due on Thursday, while the Bank of Japan council will meet on Friday.
Germany's policy-sensitive 2-year yield rose 1.5 bps to 3.23% after briefly hitting 3.254%, its highest level since July 31.
Money markets keep pricing a slight chance of an additional rate hike by year-end, currently at around 25% after briefly rising to above 30% earlier in the session.
ECB policymakers Martins Kazaks and Madis Mueller reiterated they saw a solid case for quickening the ECB's balance sheet roll-off.
ECB hawks have called for ending reinvestments from bonds bought under the 1.7 trillion euro ($1.82 trillion) Pandemic Emergency Purchase Programme (PEPP) earlier than the current end-2024 deadline.
Such a move might hurt peripheral bond prices as the ECB can flexibly use PEPP reinvestments to avoid excessive yield spread widening, which might hamper the monetary policy transmission.
Italy's 10-year government bond yield, the benchmark for the euro area periphery, rose 2.5 bps to 4.49%.
The spread between Italian and German 10-year government bond yields – a gauge of market sentiment towards the euro zone's most indebted countries – was at 179 bps after hitting a fresh 3-month high at 179.6 bps.
Greece's bonds showed a muted reaction to the two-notch upgrade by global rating agency Moody's as they already priced a significant improvement of the risk premium of Greek debt.
The 10-year bond yield rose 1.5 bps at 4.13%.
"Greece government bond yields continue to look attractive to us, especially given the spread to Portuguese government bonds is largely unchanged since before the election," Citi analysts said in a note to clients.
(Reporting by Stefano Rebaudo, editing by Alex Richardson)
