Euro zone government bond yields edged higher close to their multi-year highs as renewed inflation concerns and the European Central Bank's hawkish comments kept markets on edge.

Spreads between core and peripheral bond yields stood around Friday's levels after ECB President Christine Lagarde reaffirmed on Monday its commitment to avoid fragmentation -- a yield spread widening which might hamper the transmission of monetary policy across the euro area.

ECB Chief Economist Philip Lane said a record-high rise in consumer prices risked triggering "inflation psychology," which involves behaviours perpetuating inflation.

There are good reasons to speed up the exit from exceptionally easy monetary policy, Finnish Governing Council member Olli Rehn said on Tuesday.

Germany's 10-year government bond yield rose 1.5 basis points (bps) to 1.753%. It hit its highest since January 2014 at 1.926% on Thursday.

"ECB rhetoric is likely to remain hawkish, exerting further selling pressure on European government bonds, especially through a further rise in real yields," Unicredit analysts said in a research note, adding they expect the 10-year Bund yield to reach 2% in the coming months.

Italy's 10-year government bond yield fell 3.5 bps to 3.756%, with the spread between Italian and German 10-year yields at 199.7 bps.

Deutsche Bank analysts recalled Lagarde said on Monday the ECB needs "to be absolutely certain that monetary policy was being transmitted to the different euro area."

"So not quite 'whatever it takes' but along the same lines," they argued in a note.

Unicredit analysts flagged that the German break-even rate – a gauge of inflation expectations measured as the difference between inflation-linked and nominal bond yields – didn't track the recent rise in nominal rates.

While German 10-year bond yields rose from around 1% at the end of May to 1.926% on June 16, 10-year break-evens hit their highest at 2.77% on April 29 and then fell to around 2.2%.

"We continue to think that market-based inflation expectations will decline from their current levels only when inflation data start to show a sizeable deceleration, which we do not expect to happen in the coming months," they argued.

The European Union started the sale of a new 25-year green bond at a syndication, according to a lead manager memo reviewed by Reuters. It will raise 5 billion euros, the lead manager said.

(Reporting by Stefano Rebaudo, editing by Christian Schmollinger)