Euro zone bond yields fall as markets await direction from ECB

Most euro zone bond yields fell on Wednesday after the Bank of Japan set the tone for further easing ahead by warning of rising risks to its economy, and ahead of Thursday's European Central Bank meeting.

Central bank policy was in focus for investors after the Bank of Japan retained its ultra-easy monetary settings, and pushed backed expectations that it would exit a vast stimulus programme begun in 2013.

It cut its inflation forecasts and warned of rising risks to the economy from faltering global demand, a new setback for years of efforts to foster durable growth.

Investors will also be looking for direction on future monetary policy, and comment on the euro zone's growth outlook, when the European Central Bank meets on Thursday.

Daniel Lenz, rates strategist at DZ Bank, said the market was being influenced by political risk from the partial US government shutdown and by worries about a "no-deal" Brexit.

"Even more important is whether the world economy suffers a hard or a soft landing, and how much growth rates come down," he added. "We had International Monetary Fund numbers telling us there would be a cooling down of the economy, though not a severe one."

Most euro zone bond yields were around one basis point lower in early trade .

The yield on Germany's 10-year government bond, the benchmark for the region, slipped marginally in early trade to around 0.235 percent, putting it on track for its third straight day of falls this week.

“The ECB will likely acknowledge rising downside risks to the outlook for growth without shifting its policy stance or rate guidance significantly," Florian Hense, economist at Berenberg Bank, wrote in a note on Wednesday.

Money markets are now pricing in a less than 40 percent chance of a 10 basis point rate hike in 2019.