LONDON: Sovereign borrowing costs across the euro area held near multi-week lows on Monday after investors scaled back expectations for aggressive interest rate hikes from major central banks in the face of growing inflationary risks.

European Central Bank chief economist Philip Lane told a Spanish newspaper that euro zone inflation will ease next year, becoming the latest ECB official to push back against market rate-hike bets.

In early trade, Germany's 10-year Bund yield was steady at -0.28% -- within striking distance of six-week lows hit on Friday. Italy's 10-year bond yield briefly touched a three-week low at about 0.87%.

They both fell 18-25 bps each last week, notching up sharp weekly losses, as a number of major central banks pushed back against a growing perception in bond markets that tighter monetary policy is on its way.

"The market looks set to move into calmer waters this week," said Rainer Guntermann, a rates strategist at Commerzbank.

"The sharp countermoves in yields, curves and spreads amid waning rate hike expectations face a reality check also given the light agenda over the next few days."

The sharp drop in yields last week flattened Germany's bond yield curve, pushing the gap between 2-year and 10-year yields to around 45 bps -- not far off its tightest levels since September.

Elsewhere, ratings agency Moody's on Friday affirmed France's AA rating with a negative outlook. It decided not to update Italy's sovereign rating, which analysts said essentially confirmed the Italian rating at Baa3, one notch above non-investment grade, with a stable outlook.

This follows improvements in Italy's rating outlook by S&P to "positive" from "stable" and the rating trend by DBRS to "stable" from "negative" last month.