SINGAPORELONDON, Dec 5 Reuters Germany39;s 10year government bond yield dropped to its lowest in six months on Tuesday and world shares paused around fourmonth highs as traders upped bets on European Central Bank rate cuts early in 2024 and grappled with the Federal Reserve39;s outlook.

The 10year Bund yield dropped as much as 7 basis points to 2.28, its lowest since June 2, after European Central Bank official Isabel Schnabel said in an interview with Reuters that further interest hikes are rather unlikely, after an unexpectedly big fall in inflation.

Bond yields move inversely to prices and government bonds in most developed markets globally took a battering in 2022 and earlier this year after a rapid rise in central bank policy rates.

The final nail in the coffin for further rate hikes, even if no one was expecting any, said Andrzej Szczepaniak, senior economist at Nomura, of Schnabel39;s comments.

Traders are now nearly fully pricing in a 25 basis point rate cut from the European Central Bank at its March meeting, and nearly 150 basis points of cuts by the end of 2024.

The euro dipped, recovered and was last down slightly at 1.0829 .

Rate cuts are also expected in the U.S. with traders seeing 50 basis points of cuts as more likely than not by June. The 10year U.S. Treasury yield was down 5 basis points at 4.24, walking back some of the previous day39;s 6basispoint rise.

The market has more or less priced the soft landing scenario for the U.S. economy to…