European government bonds trading thin with US, UK markets closed

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Friday's trend of weaker short-dated maturities and stronger longer-dated contracts kept its momentum on Monday on expectations that inflation data later this week will reinforce beliefs the European Central Bank is nowhere near cutting interest rates.

Consumer price data for Germany on Tuesday, and for the wider euro zone on Friday, will show strong price pressures, with Friday's number expected to hit 3.6 percent, up from 3.3 percent in April but matching March's level, a historical record.

"Expectations on ECB rates should continue to price in a more hawkish scenario," said an analyst at BNP Paribas.

"After having priced in a rate hike as a done deal before the end of the year, the next step can be to discount such a hike sooner than what is currently priced in," said the analyst.

The persistently high oil prices, which hit multiple historical records last week, will continue to keep the inflationary threat alive, because the longer energy prices remain strong and feed into the economy, the more central banks will have to consider inflation in their monetary policies despite weaker growth.

Only relatively weak economic data in the euro zone has managed to support bond prices in the past week.

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