July 12 Reuters Euro zone government bond yields fell on Tuesday while money markets scaled back their expectations about European Central Bank39;s rate hikes amid concerns over the economic outlook due to surging energy prices and potential gas supply cuts.

Physical gas flows through the Nord Stream 1 pipeline from Russia to Germany fell to zero on Monday. 

Some analysts forecast a quick monetary tightening in 2022 and a potential stop in 2023 as they expect the euro area economy to slow down significantly due to the impact of surging energy prices and a possible reduction in gas supply.

The terminal rate for November 2023, according to the shortterm euro rate ESTR forward, was at around 1.2 from 2.6 hit in midJune.

Nomura expects the ECB to raise rates by 175 basis points by March 2023. But as an expected recession drags on, they see a 25 basispoint rate cut to follow in June.

Germany39;s 10year government bond yield fell 13 basis points bps to its lowest in almost a week at 1.179. It hit its lowest since May 31 at 1.072 last week.

Money markets are currently pricing 137 bps of ECB rate hikes in 2022, down from 145 bps on Monday, and 180 bps worth of tightening by the end of 2023 from around 195 bps the day before.

We see room for the Bund yields to decline to the bottom of the recent range, said Mohammed Kazmi, portfolio Manager at Union Bancaire Privée UBP.

Peripheral bond prices which move inversely with yields slightly underperformed their peers on…