(Corrects Sept. high for yields and milestone in para 4)
LONDON, Dec 9 (Reuters) - Euro zone government bond yields rose on Friday, bouncing off multi month lows hit earlier in the week, as the recent bond rally on expectations that central banks will raise rates less aggressively began to peter out.
In the short term, investors are also eyeing an announcement due later in the day on the size of euro zone banks' repayments to the European Central Bank, but meetings by the Federal Reserve next Wednesday, and the European Central Bank and Bank of England next Thursday are now looming very large over markets.
Germany's 10 year government bond yield, the benchmark for the euro zone, was 1.86% on Friday morning, up around 4 basis points on the day.
Government bond prices fell sharply earlier this year, and the German 10 year yield hit 2.532% in September, its highest in 11 years, but this trend has since reversed with the yield reaching a two-and-a-half month low of 1.753% this week.
Bond prices and yields move inversely.
Italy's 10 year yield was 3.77%, similarly up 7.5 basis points on the day, and after hitting an over-three-month low of 3.587% on Wednesday.
"The thing that has been driving market direction of late has been higher rates, a higher pace of rate hikes, ultimately leading to higher terminal rates and that pushes the whole term structure up, though in the last four weeks or so that started to abate," said Michael Michaelides, fixed income analyst, at asset manager Carmignac.
Analysts say a 50 basis point rate hike by each of the Fed, BOE and ECB next week is the most likely option, though market pricing indicates a small chance of a 75 basis point increase from each.
Central bank policymakers have also emphasised that even if they slow the pace of hikes, rate increases to curtail inflation are still likely to continue.
All three central banks raised rates by 75 basis points at their last meetings, the ECB for the second time in a row, and the Fed for a fourth.
Michaelides said even though central banks say they will continue to tighten monetary policy, because they are doing this more slowly bond yields are lower to reflect the possibility that rates do not actually reach as high a level as policy makers currently intend.
The other main topic of note for Friday is that the ECB will announce, at 11.05 GMT, the size of the latest round of banks targeted Longer-Term Refinancing Operations (TLTRO) repayments, one part of the central bank's efforts to mop up liquidity in the bloc. Analysts at Commerzbank said they expect a noticeable pick-up to some €500 billion from the €296 billion reported in November, and added that "a higher number may also take the edge out of calls for a more ambitious balance sheet reduction via (quantitative tightening)."
Back in markets, Germany's two-year yield was 2.09% up 2 basis points, Italy's two-year yield was 2.6% up nearly 5 basis points , and the gap between the two countries' 10 year yields stood at 189 bps. (Reporting by Alun John)