Preliminary February inflation data from France, Germany and the euro zone, among others, this week could help underscore, or challenge, such expectations.
Current market pricing expects euro zone interest rates to peak around 3.8% late this year, and a market gauge of long-term euro zone inflation expectations rose to a new nine-month high of 2.48% on Monday.
This helped send Germany's benchmark 10-year yield to as high as 2.591%, its most since July 2011, It was last up 5 basis points (bps) at 2.579%.
Germany's inflation-sensitive two-year yield hit 3.077%, its highest since 2008.
Bond yields in developed markets around the world have been rising steadily in recent weeks as data shows inflation is proving harder to bring down, which is fuelling expectations of more central bank rate increases.
European economic sentiment data on Monday showed a slight decline this month, but ING analysts said: "The inflation outlook from the survey is a mixed bag with continued high services inflation in the making, but goods inflation is set to drop from here."
Higher-than-expected U.S. personal consumption expenditure last Friday also showed the world's largest economy is proving resilient and inflation is stickier than had been hoped at the start of this year.
The U.S. two-year yield has risen around 60 bps in February and the rise in U.S. yields has also spilled over into European markets. The German two-year yield has risen more than 40 basis points so far this month, while the Italian two-year yield has risen 38 bps.
Flash inflation data, due this week from France on Tuesday, Germany on Wednesday and Italy and the euro area on Thursday, will be the latest indicators about the speed of price increases in Europe.
The figures follow last week's revision upwards to euro zone core inflation data, which caused UBS to increase its 2023 core inflation forecast to an average of 4.2% from 3.9% previously, potentially leading to more interest rate increases.
"Our current baseline foresees the (European Central Bank) delivering a 50 bp hike to 3% on 16 March, followed by a 25 bp hike to a terminal rate of 3.25% in May. However, even before the January inflation data we saw the risk as skewed to the upside (i.e. more/larger hikes)," they said.
"In our view, the details of the January inflation release further reinforce the upside risk."
There are also plenty of ECB policymakers due to speak this week, with remarks about the rate outlook likely.
Spanish central bank governor Pablo Hernandez de Cos and ECB chief economist Philip Lane are up on Monday.
Italian bonds, the benchmark for the European periphery,
performed a little better on the day than their German
counterparts.
The two-year yield was down 3 bps at 3.633% having hit 3.681% on Friday, its highest since 2012.
The 10 year yield was down 1 bps at 4.424%. (Reporting by Alun John; Editing by Susan Fenton and Sharon Singleton)
