Wires

Euro zone bond yields drift lower in pre-holiday lull

Dhara Ranasinghe

(There will be no London-based euro zone bond market report on Dec. 24 due to the Christmas holiday)

* Euro zone periphery govt bond yields http://tmsnrt.rs/2ii2Bqr

LONDON, Dec 23 (Reuters) - Euro zone bond yields drifted down on Monday, as investors plumped for the safety of safe-haven government debt in thin pre-holiday trade.

French, German and Dutch 10-year bond yields last week hit their highest levels in around six months in the wake of a decision by Sweden's central bank to hike interest rates out of negative territory.

But they dipped 1-2 basis points in early Monday trade, reflecting demand for safe-haven sovereign debt ahead of the Christmas holiday period.

Germany's benchmark 10-year Bund was 2 bps lower at -0.27% , almost 6 bps below last week's six-month high.

Still, it has risen almost 50 bps from record lows set in early September -- reflecting an easing of worries over Brexit, a bitter U.S./China trade conflict and some signs that the worst may be over for the euro zone economy.

China said on Monday it would lower tariffs on products ranging from frozen pork and avocado to some types of semiconductors next year as it looks to boost imports amid a slowing economy and the trade war with the United States.

The news had little impact on markets, which have already adjusted to a thawing in U.S./China trade relations.

Elsewhere, European Central Bank Governing Council member Klaas Knot said interest rates in the euro zone could remain historically low for years, but the ECB's ultra-loose monetary policy risks becoming counterproductive.

"More strikingly though he also noted that 'from a macro-economic perspective that would be undesirable,' said Chris Bailey, European Strategist at Raymond James.

"Yes, learn from the experience of Japan. If the ECB does change a little in 2020 then expect bond yields to be the area to struggle."

(Reporting by Dhara Ranasinghe; Editing by Toby Chopra)