Eurozone bond yields retreat as spotlight shifts to Powell

* Declining bond yields from 0.5 to 2 basis points per day

* Powell launches 2 day testimony to Congress

* Germany sells 3 billion euros of 2-year bonds

* Eurozone government bond yields declined slightly on Tuesday, with trade largely under control in the face of Federal Reserve Chairman Jerome Powell's testimony before the US Treasury. Congress.

Solid data from US retail sales on Monday pushed US and European bond yields higher as markets bet that a strong economy would keep the Fed on the path to higher interest rates. ;interest.

But markets tended to softer on Tuesday, reflecting investor reluctance to push yields higher before the first half of Powell's two-day testimony.

Powell should express confidence in the US economy and affirm the Fed's gradual approach to raising short-term interest rates, while analysts say they'll follow closely all comments on the impact of trade tensions and the marked flattening of the US Treasury Curve.

The Fed's rate hike campaign fueled fears that short-term yields will eventually outperform long-term yields, resulting in a reversal of the yield curve. An inverted yield curve preceded the last five US recessions.

"The main message will be that the Fed remains on track to raise rates, which is updated by the markets," said KBC strategist Mathias van der Jeugt.

"But if it accentuates rhetoric about downside risks arising from a trade war, markets will begin to question the trajectory of rising rates."

10-year bond yields in the euro area fell 0.5 to 2 points on the day, with South European bonds outperforming.

The yield on 10-year Italian bonds fell 2bp to 2.56%, pushing the German Bunds' lows to its lowest point in almost four weeks.

Germany is expected to sell 3 billion euros worth of government bonds at two years old on Tuesday in the first plentiful offer of bonds this week.

According to the Commerzbank, the eurozone issuers' offer will reach this week about 17 billion euros.