LONDON- The sell-off in euro zone bond markets showed no sign of slowing on Monday, with more yields climbing into positive territory and traders pricing in as many as four European Central Bank interest rate hikes within a year.

Belgian and Dutch 2-year yields were the latest to breach 0% - for the first time since 2014 - as investors bet on higher rates in the face of soaring inflation.

This month has proven pivotal for yields, with most soaring by tens of basis points and bringing the end of negative yields in the euro zone a step closer.

The German 2-year yield is up 40 basis points in March, putting it on course for its biggest monthly rise since 2011, and on Monday it reached as high as -0.06%

Hopes for talks between Ukraine in Russia have underpinned investor confidence and sparked a revival in risk assets in recent weeks. On Monday, those hopes offset worries about a COVID-19 lockdown in Shanghai and traders have not bought back into safe-haven bonds.

But it is concern that central banks are behind the curve in tackling soaring inflation that is dominating bond markets.

"Despite volatility remaining high, a clear upward trend in (European government bond) yields has emerged in the past few weeks," said UniCredit analysts.

According to money market pricing, investors see the ECB raising rates four times by 25 basis points each before the end of the first quarter of 2023. That would put rates at 0.5%, up from the current -0.5%.

The ECB usually hikes in 10 basis point increments and policymakers have sought to play down expectations for rapid tightening, but given the Federal Reserve and the Bank of England are hiking and inflation is way above target, investors are increasingly confident the ECB will act soon too.


In U.S. bond markets, the gap between five- and 30-year yields on U.S. Treasuries fell into negative territory for the first time since early 2006.

While parts of the yield curve, namely five to 10 and three to 10 years, had already inverted last week, the slide of the gap between five- and 30-year maturities into negative territory raised concerns the Fed's efforts to tame inflation might hurt growth.

Paul Donovan, an economist at UBS, said the inversions did not mean a recession was inevitable and noted that many countries currently have inverted yield curves while economic growth remains positive.

In the euro zone, at the longer-end of the curve, 10-year benchmark yields also rose on Monday, with Germany's and France's climbing 1 to 2 basis points. By 1020 GMT, they were trading flat on the day.

Italian 10-year yields gained as many as 5 basis points to 2.168%, the highest since April 2020.

The widespread rise in yields means the number of bonds carrying sub-zero yields in the euro zone is shrinking fast.

Five-year borrowing costs in Austria, Belgium, Finland, Portugal and Slovakia all moved into positive territory last month, and many of the short-dated yields have followed suit in March.

(Editing by Kirsten Donovan and Mark Potter )