Euro area markets scale back bets on rate hikes before?ECB meeting

By Stefano Rebaudo

Dec 17 (Reuters) - Euro zone yields fell and investors pared back bets on future European Central Bank rate hikes on Wednesday as the impact of recent hawkish remarks by board member Isabel Schnabel faded ahead of Thursday's policy meeting.

The Bank of England will also be in focus on Thursday, while the Bank of Japan will announce its decisions on Friday.

Yields on German 2-year Schatz fell 1.5 bps to 2.123%, the lowest level since December 8.

Germany's 10-year yields, the euro area's benchmark, were down 1.5 basis points (bps) at 2.83%. They hit 2.894% last week, their highest level since mid-March. Money markets priced in around a 20% probability of a tightening move by December 2026 and a 35% chance by March 2027 from more than 50% last week. The ECB depo rate is currently at 2%.

German 30-year yields fell 1.5 bps to 3.46%, after hitting 3.498% last week, their highest level since July 2011, as long-dated debt came under pressure on expectations of heavier bond supply. Benchmark 10-year U.S. Treasuries yields rose 0.5 bps to 4.15% in early London trading after falling 3.5 bps the day before after data showed an unexpected increase in the unemployment rate last month.

Italy's 10-year government bond yields were down 2.5 bps at 3.48%, with the gap versus Bunds at 65 bps, after hitting a fresh 16-year low at 64.50 bps. (Reporting by Stefano Rebaudo; editing by Andrew Heavens)