Jan 16 (Reuters) - The euro zone benchmark Bund yield edged lower on Tuesday after rising the day before as European Central Bank policymaker Francois Villeroy de Galhau said the ECB's next move would be an interest rate cut in 2024, barring surprises.
Analysts said the French central bank governor was pragmatic and tended to provide reliable guidance for the policy path in the euro area.
Villeroy de Galhau argued that the ECB could not declare victory over inflation without commenting on the timing of a possible monetary easing.
Money markets stood their ground, still discounting around 150 bps of ECB rate cuts by year-end, while fully pricing a first move in April.
"The ECB probably knows that it is difficult to really move markets away from pricing that is seemingly inconsistent with its communication," said Benjamin Schroeder, senior rate strategist at ING.
"The remarks by (ECB chief economist Philip) Lane and most others, including (policymaker Joachim) Nagel, yesterday seem to indicate that there is a consensus building within the Council that summer could be a possible turning point (for the monetary policy)," he added.
Germany's 10-year government bond yield, the euro area's benchmark, was down one basis point (bp) at 2.18%.
Markets await the ECB consumer expectations survey and the ZEW indicator of economic sentiment for the euro area.
ECB officials seen as doves, including Lane and Constantinos Herodotou, flagged on Monday that current market expectations of rate cuts are too optimistic.
ECB's Nagel, who is the Bundesbank president and an outspoken hawk, reiterated that inflation was too high to cut rates. At the same time, his Austrian colleague Robert Holzmann said one should not "bank" on the ECB cutting rates at all this year.
Market participants label as hawks central bank officials who are inclined to advocate a tight monetary policy to control inflation, while doves are more focused on economic growth and the labour market.
Rabobank analysts flagged a high sensitivity to ECB remarks "given the degree of rate cuts that have been priced."
They argued that while the view of ECB hawks Nagel and Holzmann "was not particularly surprising," there was "a decent level of pushback from Herodotou," who is one of the more dovish policymakers.
Italian government bonds underperformed their peers, with the 10-year yield up 4 bps to 3.82%, and the gap between Italian and German 10-year yields widening to 160.5 bps. Bond prices move inversely with yields. (Reporting by Stefano Rebaudo, Editing by Bernadette Baum) ;))
