Euro zone bond yields hit two-month highs

LONDON, Jan 2 (Reuters): Bond yields in Germany and Italy, two of the euro zone's biggest debt markets, hit two-month highs on Tuesday as a cut in monthly European Central Bank (ECB) asset purchases became a reality and hawkish comments from a top official hurt sentiment on the first trading day of 2018.

Benoit Coeure, the Frenchman in charge of carrying out the ECB's bond purchases, sees "a reasonable chance" the 2.55 trillion euro stimulus programme will not be extended again when it expires in September, he told a Chinese financial magazine at the weekend.

The comments highlight that the days of extraordinary monetary stimulus are nearing an end given stronger economic conditions and signs of a pick-up in inflation.

Data on Friday showed inflation in Germany, Europe's biggest economy, hit its highest level in five years in 2017.

ECB monthly bond purchases, which have long underpinned low borrowing costs, have fallen to 30 billion euros from 60 billion euros.

That cut in purchases from the start of January, unveiled last year, comes just as investors brace for a hefty month of supply - a potentially powerful headwind for regional bond markets.