* Fed, ECB seen dovish but no promises expected
* Bund yields below 1 pct, other EZ yields also at historic lows
* No expectations of higher yields in the near term
By Marius Zaharia
LONDON, Aug 22 (Reuters) - German Bund yields held below 1 percent on Friday, with investors anticipating that central bankers gathering for an annual conference in Jackson Hole, Wyoming, would signal they are in no rush to either tighten or loosen monetary policy.
Federal Reserve chief Janet Yellen is likely to reiterate a view expressed last month that there is significant under-utilisation of labour resources. Those comments prompted markets to push back the timing of an interest rate hike.
European Central Bank President Mario Draghi is under pressure to use his last remaining tool -- printing money -- to tackle near-zero inflation and lift a stagnating economy, but he is not expected to show any urgency in that regard.
The ECB cut all its interest rates in June and will offer up to 1 trillion euros of cheap four-year loans to banks (TLTROs)from September. Draghi has said he wants to see the results of these measures before taking new steps.
“Slow growth ahead ... will keep hopes up that the ECB will start a full-scale QE programme,” said Suvi Kosonen, an analyst at Nordea, referring to quantitative easing, the technical term for central bank asset purchases.
“Draghi will most likely stay dovish, but we expect no promises of new measures at this point with the TLTROs still about to materialise. So no ‘whatever it takes’ 2.0 coming up today.”
German 10-year Bund yields were 0.7 basis points lower at 0.986 percent.
They breached 1 percent for the first time a week ago after a raft of poor euro zone data and on the back of concerns over the impact of economic sanctions imposed by the West and Russia on each other over the conflict in Ukraine.
Other euro zone yields also held relatively steady around historic lows. Spanish and Italian yields were flat at 2.39 percent and 2.58 percent respectively.
Such low borrowing costs for countries which have a combined debt of 3 trillion euros, are struggling to grow and have no inflation raise questions about the sustainability of a two-year-old rally sparked by Draghi’s promise in 2012 to do whatever it takes to save the euro.
Some observers such as the Bank for International Settlements, which is known as the central bank of central banks, see the rally as a potential bubble which might burst once money gets more expensive, especially in the United States.
But a weak correlation between Spanish and Italian yields with their U.S. counterparts is reassuring.
The ECB’s stance also helps the euro zone bond market to decouple from the one across the Atlantic.
“In essence, growth and inflation surprises would help sovereign credit risk through supporting debt sustainability, while the absence of growth and inflation will spur further ECB accommodation,” Societe Generale rate strategist Ciaran O’ Hagan said in a note.
“So heads, prices rise and tails, yields fall.” (Reporting by Marius Zaharia; Graphic by Monica Ulmanu; Editing by Gareth Jones)