Yield spreads between core and peripheral euro zone government bonds tightened amid less hawkish signals from central banks, while German borrowing costs tracked moves in U.S. Treasuries.

Analysts said minutes of the Federal Reserve's latest meeting suggested the central bank could pause its tightening path once the policy rate is back to its neutral level, which some economists estimated at around 2.5%.

Recent comments from ECB officials also soothed fears of a more aggressive than expected tightening path from the European Central Bank, including a 50 bps rate hike in July.

President Christine Lagarde gained key allies for her gradual tightening plan on Wednesday, but Klaas Knot, one of the most conservative governing council members, argued right away that the central bank should not yet rule out a 50-basis-point interest rate increase in July.

Lagarde has advocated a gradual approach to monetary tightening while asserting the ECB is free to react to the effects on the economy and the inflation outlook as rates rise.

Most analysts forecast the central bank will raise rates by 25 bps in July before taking further steps to drive the ECB's deposit facility rate into the positive territory by year-end.

Germany's 10-year yield was 2 bps higher at 0.974%, after hitting its lowest since May 13 at 0.887%.

It dropped as much as 14 bps from 1.033% hit on Tuesday, the day Lagarde said she saw the ECB's deposit rate at zero or "slightly above" by September.

The U.S. 10-year Treasury yield was up 1 bps, after hitting its lowest since April 14, at 2.706%.

Italy's 10-year BTP government bond yield was 2.5 bps lower after earlier hitting a one-week low of 2.884%, with the spread between Italian and German 10-year yields tightening by 5 bps to 194 bps.

Spreads between Portuguese and Greek 10-year bond yields and their German counterparts also tightened by around 4-5 bps.

"The (modest) bull tightening of BTPs highlights that easing central bank anxiety is key," Commerzbank analysts said.

However, there is still some uncertainty around the ECB's next moves. "We expect the ECB to hike by 25 bps at the July meeting, with a larger first step being more difficult to reconcile with the highly uncertain growth environment," Unicredit analysts said in a note to clients.

Investors will also be watching Italy after the Tesoro sold 2.25 billion euros in bonds, while Fitch will review the country's rating on Friday.

Analysts said Fitch is arguably the most sensitive of the three leading agencies to debt ratios. It might also be vigilant to rising interest costs on sovereign debt amid increasing yields.

Analysts expect the rating agency to wait for ratings or outlook changes due to rising political risk before parliamentary elections in the first half of 2023.

(Reporting by Stefano Rebaudo, Editing by Kirsten Donovan)