Euro zone bond yields held near recent highs on Wednesday as investors await a US inflation reading that may give further clues about the Fed's policy tightening path ahead.

Testimony to US congress by US Federal Reserve chairman Jerome Powell, who said the economy was strong enough to handle the start of tighter monetary policy, sent US Treasury yields falling on Tuesday after the European markets close, perhaps as Powell did not sound more hawkish than market expectations.

That appeared to also remove some upward pressure from euro zone bond yields on Wednesday. Those have also risen sharply since the start of the year.

They have followed US Treasury yields higher as investors bet the US Federal Reserve could hike rates as early as March, as the bank's December meeting minutes showed some policymakers want to move even faster to tighten policy, including by winding down the bank's balance sheet.

Euro zone bond yields hold near multi-year peaks with eyes on central banks

By 0753 GMT, Germany's 10-year yield was unchanged on the day at -0.03% after rising as high as -0.014% on Tuesday, nearing positive territory for the first time since May 2019.

On Wednesday, all focus is on the US December inflation reading due at 1330 GMT, which is expected show consumer prices rose 7% year-on-year, according to a Reuters poll.

That reading comes as pressure is on the Fed to raise rates as soon as March following a jobs report last week that underscored a tightening labour market.

The month-on-month rise in consumer prices however is expected to slow to 0.4% from 0.8% in November.

"A lower month-on-month number should not change much on the pricing of the Federal Reserve as they need more than one number to change their view on quantitative tightening and rate hikes," Allan von Mehren, chief analyst at Danske Bank, said.

"Underlying price increases have been higher than estimated for many months now so risks seem skewed to the upside.

"High inflation and a tight labour market with no significant rebound in labour force participation put the Fed under pressure to hike (rates) more."

In the primary market, Portugal is expected to join a flurry of government January bond issuance after hiring a syndicate of banks to sell a 20-year bond on Tuesday.