july 12 reuters  euro zone government bond yields fell on tuesday while money markets scaled back their expectations about european central banks rate hikes amid concerns over the economic outlook due to surging energy prices and potential gas supply cuts physical gas flows through the nord stream 1 pipeline from russia to germany fell to zero on monday read more some analysts forecast a quick monetary tightening in 2022 and a potential stop in 2023 as they expect the euro area economy to slow down significantly due to the impact of surging energy prices and a possible reduction in gas supply the terminal rate for november 2023 according to the shortterm euro rate estr forward was at around 12 from 26 hit in midjune nomura expects the ecb to raise rates by 175 basis points by march 2023 but as an expected recession drags on they see a 25 basispoint rate cut to follow in june read more germanys 10year government bond yield fell 13 basis points bps to its lowest in almost a week at 1179 it hit its lowest since may 31 at 1072 last week money markets are currently pricing 137 bps of ecb rate hikes in 2022 down from 145 bps on monday and 180 bps worth of tightening by the end of 2023 from around 195 bps the day before we see room for the bund yields to decline to the bottom of the recent range said mohammed kazmi portfolio manager at union bancaire privée ubp peripheral bond prices  which move inversely with yields  slightly underperformed their peers on concerns about the ecbs socalled antifragmentation tool and italian politics italys 10year bond yield fell 10 bps to 3202 while the spread between italian and german 10year yields widened by 35 bps to 208 bps portuguese and spanish yield spreads widened by 25 and 3 bps to 1075 and 1083 bps   the ecb pledged to buy more bonds from debtladen countries such as italy to contain the widening spread between their borrowing costs and germanys that might hamper monetary policy transmission across the bloc hawkish policymaker joachim nagel said the ecb should model its bondbuying scheme on the one announced during the debt crisis namely the outright monetary transactions programme omt which allows the ecb to buy unlimited amounts of bonds from countries that apply for a bailout from the european stability mechanism read more he added on tuesday that current differences in yields were fundamentally justified until proven otherwise read more nagels remarks dont help but i dont think theres any real news about the antifragmentation tool if markets were disappointed we would see much higher spreads as markets would test the ecb’s resolve ubps kazmi argued meanwhile italian premier mario draghi met on monday with italys president to discuss the future of his government amid simmering tensions with coalition member the 5star movement theres a bit of political noise affecting spreads with five star providing less support for the draghi government our basecase scenario is that draghi will stay as a prime minister without snap elections this year he added reporting by stefano rebaudo editing by kirsten donovan and raissa kasolowsky