* ECB's Draghi says stronger euro may trigger more easing
* Bunds, low-rated euro zone yields fall
* Greek yields edge up as market-comeback frenzy fades
(Adds fresh comments, updates prices)
By Marius Zaharia
LONDON, April 14 Yields on government debt fell
across the euro zone on Monday, with those on German Bunds
hitting 10-month lows after European Central Bank chief Mario
Draghi said a stronger euro might trigger further monetary
Helping pull the euro back from its strongest levels
in a month, Draghi gave his clearest signal yet over the weekend
that the ECB was prepared to conduct a stimulative
Draghi's French colleague, Benoit Coeure, cautioned that
purchases of a single asset class, such as government bonds,
might not have the desired affect. But he hinted that any asset
purchases would be linked to interest rates in the intermediate
to longer part of the yield curve.
Even though several ECB policymakers have expressed deep
reservations about pursuing a U.S.-style programme of sovereign
asset purchases, it was longer-term government bonds that
reacted strongly on Monday.
"The performance seems to be confined to the five- to
10-year maturities rather than the front end, suggesting
investors are playing the closest attention to comments around
quantitative easing," said Alessandro Tentori, global head of
rates strategy at Citi.
Quantitative easing is jargon for central banks buying
assets with newly printed money.
German 10-year Bund yields, the benchmark for
euro zone borrowing costs, dipped to a 10-month low of 1.491
percent before paring those gains.
Italian 10-year bond yields fell 4 basis
points to 3.18 percent, within touching distance of record lows.
Spanish yields fell 5 bps to 3.14 percent.
Strategists say the ECB's readiness to intervene has bought
time for countries like Italy to implement reforms, keeping open
the taps of cheap bond-market funding.
Retail investors have already placed more than 5 billion
euros of orders for a new Italian inflation-linked bond on
Monday. The notes go on sale to institutional accounts later in
"Italy has to deliver on its growth promises, because this
line of credit will not be open forever," said Sergio Capaldi, a
fixed income strategist at Intesa Sanpaolo.
Italian Prime Minister Matteo Renzi stepped up calls for
more flexibility around the European Union's budget limits last
week, saying the current framework is hurting growth and costing
Italy's budget deficit has met the EU's budget deficit
target, 3 percent of gross domestic product, for the past two
years. But its public debt, the second highest in the euro zone
after Greece's, has risen steadily.
GREEK YIELDS RISE
Greece was one of the few markets in which yields rose on
Monday, as investors booked profits on the strongest bond rally
in the euro zone this year. Ten-year yields added
16 bps to hit a day's high of 6.47 percent on Monday.
There was further selling pressure on Greece's new five-year
bond issued on Thursday, a deal that marked its return to bond
markets just two years after restructuring its debt.
Some analysts said the bond's pricing at 4.95 percent was
too aggressive, leaving no room for a further dip in yields in
secondary markets. The new bond last yielded
(Reporting by Marius Zaharia and John Geddie; Editing by Larry