LONDON (AFX) - European government bonds were little changed as a dearth of economic news kept trading activity to a minimum following Friday's short-covering recovery.
"Barring surprises, it's going to be a quiet kind of week until Friday," said 4CAST fixed income analyst Jose Garcia Zarate.
On Friday, the market will closely monitor US CPI data, which will be crucial in determining whether the US Federal Reserve will raise interest rates again any time soon.
The rate-setting Federal Open Market Committee kept its key Fed funds rate on hold on Aug 8 at 5.25 pct after 17 consecutive quarter point increases.
John Davies, fixed income strategist at WestLB, said speeches from Fed officials today will have to be "even more cautious than the 'tightening bias' announced by San Francisco president (Janet) Yellen last week in order to put much pressure on the market".
Yellen last week said the Fed should retain its tightening bias until such a time as inflation pressures recede.
In contrast to the Fed, most expect the European Central Bank to lift borrowing costs in both October and December. Friday's equivalent inflation data for the 12-nation single currency zone are likely to fuel those expectations.
In any case, ECB board member Juergen Stark gave a further indication to the market that an October rate hike is on the cards.
In an interview with Handelsblatt newspaper, Stark said he sees a risk that inflation expectations will rise if the market harbours the impression the ECB is tolerating an inflation rate above 2 pct.
He said the ECB is getting mixed signals on whether inflation expectations would harden, with one set of data coming from the EU Commission's consumer survey showing short-term inflation expectations have increased.
"But I see the risk that they will harden on higher levels if the wrong impressions on the market prevail that the ECB is tolerating inflation of more than two percent," he added.
Stark said he does not think higher interest rates in the euro area will impair the region's economic recovery in any significant way.
Over in the UK, gilts were little changed despite some soft producer price data.
Despite a fall in input prices in August and further evidence that manufacturers are not passing previous price rises down the supply chain, most commentators continue to expect another interest rate hike from the Bank of England in November.
At Yield Change on
1107 GMT pct previous close
Dec euribor future (Liffe) 96.295 dn 0.010
GERMANY
Sept bund future (Eurex) 117.36 dn 0.01
3.50 pct Jan 2016 govt bond 97.94 3.76 unchanged
FRANCE
3.0 pct Oct 2015 govt bond 94.16 3.77 unchanged
UK
Sept gilt future 109.98 dn 0.03
4.00 pct Sept 2016 govt bond 95.73 4.54 dn 0.02
March short sterling future 94.79 dn 0.010
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