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Euro zone bond yields dip before Thursday's ECB policy meeting

By Yoruk Bahceli

Oct 27 (Reuters) - Euro zone bond yields dipped, while Germany's yield curve flattened on Wednesday and with little data ahead, bond markets were set for modest moves before Thursday's European Central Bank policy meeting.

The ECB is expected to keep policy unchanged and leave a decision on its pandemic emergency bond purchase programme to December, but its president Christine Lagarde is expected to push back on market pricing that has seen breakeven inflation expectations hit seven-year highs above the ECB's 2% target and a rate hike priced in for next year.

"The ECB is not going to be raising rates next year ... If they still believe that then they have to say it quite forcefully and that should bring a bit of relief," Chris Iggo, chief investment officer for core investments at AXA Investment Managers.

While Iggo acknowledged that some ECB policymakers have pushed back against market pricing, "it needs to be done at a policy press conference by Lagarde, it needs to be quite forceful," he said.

By 0650 GMT, Germany's 10-year yield, the benchmark for the bloc, was down less than a basis point at -0.12%.

The German yield curve flattened slightly as 30-year yields fell more than shorter-dated yields.

The longer-end of the German yield curve has flattened aggressively this month alongside those in Britain and the U.S., a move some analysts say reflects investor concern that central banks may pull back stimulus too early, hurting growth prospects.

Italy's 10-year yield was down less than a basis point at 0.94%

Investors will also be watching Britain's annual budget as moves in British Gilts have often led euro area government bond movements in recent weeks.

In the primary market, Germany will re-open a 15-year bond at auction. (Reporting by Yoruk Bahceli; Editing by Alexander Smith)